Virtual power plants (VPPs), which employ software and IT innovations to achieve the optimum usage of grid assets while maintaining the proper balance of the electricity grid, are expected to play an increasingly important role in the future of the power sector.

As energy markets accelerate in the direction of a greater reliance upon distributed energy resources (DER), VPPs can help create an "energy cloud" business model in which anyone, anywhere can buy and sell energy services on an open market.

According to a recent report from Navigant Research, the total worldwide capacity of virtual power plants is expected to more than quintuple in the next 9 years, growing from 4,800 megawatts (MW) in 2014 to nearly 28,000 MW by 2023.

"Combining a rich diversity of independent resources into a network via sophisticated planning, scheduling, and bidding of distributed generation-based services, virtual power plants have the potential to harness and distribute electricity in ways hardly envisioned just a few years ago," says Peter Asmus, principal research analyst with Navigant Research. "In order to make these markets work, though, rules need to be established to allow these transactions to flow back and forth across a common carrier grid."

The most notable VPP segment today, according to the report, is the demand response (DR) VPP. In an ideal world, peaks in demand can be met by ramping down loads in near real-time instead of firing up expensive, and often polluting, fossil peaking power plants.

The DR-VPP application is the largest commercial segment in the United States, which has the most mature DR market in the world. DR is also now slowly gaining traction in Europe, and is slowly but surely taking off in Asia Pacific, as well.