Challenges of Integrating Virtual Power Plant Distributed Energy Resources into the Traditional Centralized Taipower System

By George Hsu (Director of TAEDT), Xin-En Wu (Director of EnergyOMNI)

Taiwan's traditional power system is a vertically integrated structure characterized as a "closed-loop organization," primarily relying on a few financially strong conglomerates. This system operates on a "front-of-the-meter, large-scale, centralized, one-way" model, utilizing only a few dozen fossil fuel power plants. Electricity is transmitted across regions over long distances using high-voltage or ultra-high-voltage transmission facilities to meet the power needs of all residents in Taiwan.

However, under the current global trend toward achieving net-zero sustainability by 2050, the focus has shifted to "open-loop organizations" with horizontal diffusion through crowdsourcing. This approach emphasizes a "behind-the-meter, small-scale, decentralized, two-way" model that relies on numerous unspecified "prosumers" (producers and consumers). Utilizing low-voltage distribution equipment for "local, short-distance" power delivery, it highlights the collaboration between public and private partners. Innovative technologies such as Distributed Energy Resources (DER), Virtual Power Plants (VPP), microgrids, and Energy-as-a-Service (EaaS) represent a "soft path" to flexibly adjust supply and demand. These technologies promote a shared economy model (with usage rights but not necessarily ownership) to achieve energy autonomy for RE100 companies and communities.

The issue lies in the fact that traditional vertically integrated power companie's central dispatch centers can only manage high-voltage and ultra-high-voltage power dispatching. They are unable to detect distributed energy resources within low-voltage distribution systems, especially those "behind-the-meter," let alone manage or effectively dispatch them.

To address this issue, the United States Federal Energy Regulatory Commission (FERC) issued Order No. 2222 on September 17, 2020. This order requires all Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) to amend their power dispatch rules to effectively manage and accommodate a wide range of distributed energy resources, both "front-of-the-meter" and "behind-the-meter." Similarly, the European Union, through Directive 2019/944, has mandated that member states grant low-voltage distribution systems (primarily distribution system operators) unprecedented power dispatch responsibilities and authority.

The U.S. Department of Energy declared in late 2023 that VPPs are in the "commercial liftoff" stage. By 2030, it is estimated that widespread participation from various electricity consumers, enabled by crowdsourcing, will lead to a significant rise in "prosumers"—individuals with dual roles as both producers and consumers. Examples include installing solar panels and storage batteries on residential rooftops and vehicle-to-grid power flow. This grassroots approach could effectively replace 10% to 20% of peak power plant investments, offering unique market advantages such as short lead times, maximizing green energy penetration (decarbonization), and enhancing grid resilience.

The innovative technology services and business models of Virtual Power Plants (VPPs) have transformed the traditional power industry's supply-demand balance from the "generation follows load" model to a "load follows generation" approach. This shift addresses the growing share of renewable energy in the power market and the unprecedented challenges of power dispatching caused by the intermittent and rapid fluctuations of solar and wind energy generation. The flexible operation and quick response capabilities of VPPs have become critical resources in the power market.

The second amendment of Taiwan's Electricity Act is currently underway, focusing not only on maintaining the integrated power system of Taipower, establishing independent power dispatch and trading centers, and forming a regulatory authority for the electricity industry but also addressing the following key aspects: How can the high-voltage-centric central grid of Taipower be adapted to incorporate low-voltage distribution systems and "behind-the-meter" virtual power plants that utilize distributed energy? How can Taipower transform into an open organization that proactively collaborates with numerous external stakeholders, including community-based power plants and electric vehicle owners? How can market mechanisms and the application of AI and big data analytics encourage more flexible consumers (Flexumers) to change their behavior and implement lifestyle transformation? How can the "platform economy" inject social resilience into Taiwan's isolated power system through the participation of SMEs and the general public? Should the Electricity Act establish a dedicated section to regulate the technology services and operational models of Virtual Power Plants (VPPs)? These policy and regulatory issues related to VPP development deserve serious consideration from all stakeholders.

At this critical juncture, the "Taiwan Industry-Academia Technology Alliance for Energy Digital Transformation (TAEDT)" and EnergyOMNI Magazine have jointly planned a special feature on the topic of Virtual Power Plants (VPPs), inviting prominent figures from both public and private sectors in Taiwan to participate in exclusive interviews, offering strategies to address the aforementioned challenges. Hoping this initiative will help readers understand the issues and solutions that the power system will face as the share of renewable energy in the market continues to grow.

Taiwan Industry-Academia Technology Alliance for Energy Digital Transformation (TAEDT)
Taiwan Industry-Academia Technology Alliance for Energy Digital Transformation (TAEDT) was established in February 2022 at Chung Hua University, funded by the National Science and Technology Council of the Executive Yuan. This alliance brings together industry, government, academia, research, and society, spanning 11 universities and featuring 17 renowned professors as co-chairs and 14 industry leaders as directors, creating a think tank-style virtual platform.
Aligned with Taiwan's 2050 net-zero transition strategy, which emphasizes energy transformation, the alliance focuses on the technical services and business models within three key ecosystems: "Distributed Energy Resources," "Virtual Power Plants," and "Smart Microgrids."
As of now, the alliance has 120 group members, including public and private sector organizations, publicly listed companies, and startups. These members represent over 30 different industries, including state-owned power enterprises, green energy providers, aggregators, electricity retailers, energy storage companies, electric vehicle operators, and aggregators, forming a diverse cross-industry collaboration. The alliance also invites experts and scholars specializing in net-zero sustainability and energy transition to serve as keynote speakers on focus topics. It has hosted over 100 online and offline events, with more than 8,000 participants.