Exploring the Challenges and Prospects of VPP Technology Services

By Xin-En Wu

Since its establishment, Naturalpower has been dedicated to providing green energy and electricity sales services. Its core business includes bridging the gap between buyers and sellers, addressing the mismatch in credit risks and commercial terms to ensure smooth transactions.

"We often encounter mismatches between sellers and buyers in terms of credit risk and commercial conditions. For example, power generators prefer stable customers willing to sign 20-year contracts, but buyers may not be willing to commit to such long-term obligations or accept the seller's terms. The logic of both parties differs. Our role is to mediate between them, narrowing the gap and making contracts more feasible," said Phil Chien, Founder and General Manager of Naturalpower.

Chien has extensive experience in the power market, having served at the Industrial Technology Research Institute (ITRI), where he co-led an energy audit project commissioned by the Energy Administration and audited the electricity usage of major consumers. In 2012, he joined Chailease Holding Company, where he developed various business models for Energy Efficiency Financing (EEF) and energy investments over a decade. To further address corporate users' needs for net-zero and green energy procurement, he founded Naturalpower three years ago. The company has since successfully arranged over one hundred million kWh of green energy sources for renowned Taiwanese and international enterprises.

Phil Chien, Founder and General Manager of Naturalpower

"Taiwan's power system is isolated, unlike continental or other foreign power markets. Taiwan faces challenges such as price constraints, the inability to allow power outages, and limited government budgets. How to integrate Distributed Energy Resources (DERs) within the Virtual Power Plant (VPP) framework is a topic that requires in-depth exploration," Chien remarked. "Our mission is primarily to assist both the supply and demand sides of the power market, but their perspectives and situations are often limited by government regulations and operational frameworks."

Chien believes that Taiwan's power system could move towards a more "open" direction by developing new digital applications and management control systems, thereby improving the overall efficiency of power transmission and distribution operations. "If government regulations are too stringent, the market cannot be liberalized, and there is a lack of intelligent intermediary services, businesses will not be motivated to invest capital or use government resources to develop new service models," Chien noted.

Chien further illustrated his point: "The current rules for power transfer by Taipower require matching within 15 minutes, which is very strict and allows no errors. This necessitates the development of optimal transfer allocation software. In the past, those responsible for calculating transactions might not have been strong in mathematics, so they could only monitor without precise calculations. In such cases, if calculations are done correctly and matching is precise, losses will be reduced, and the actual power sold to suitable users will fetch a higher price," Chien explained. "When calculations and matching are well-executed, losses decrease, and the actual sale price of electricity rises. This value naturally leads to the creation of viable products. These products then enter the market, allowing users to verify their applicability."

Good electricity sales companies will use appropriate tools. "If these tools are suitable for our application, it means that after calculations are completed, the data can be directly transmitted to the system and interfaced with Taipower rather than being operated manually," Chien mentioned. He also noted that Taipower's interface needs to be gradually opened during this process.

Chien believes that effective interface integration between Taipower and VPP, effective communication and allocation between system resources, and Demand-Side Management (DSM) are necessary.

The Need for Enhanced Digital Integration in Taipower's System Interface

Naturalpower must implement the appropriate tools and integrate interfaces with the Taipower system. However, the Taipower system's conservativeness hinders seamless integration. Chien pointed out that communication with Taipower and the government is still primarily paper-based and has not yet been digitized, significantly reducing efficiency.

For instance, the typical duration for completing a project in the transfer of renewable energy is 3 to 4 months. Shortening this process would increase the opportunities and volume of renewable energy entering the market, as well as improve transaction flexibility. Chien suggested that electronic checks should be carried out initially, with paper documents used as necessary to enhance process efficiency.

Chien added that Taipower and the government constantly adjust relevant regulations, making it difficult to establish a stable management system. "Due to the frequent changes in Taipower's procedures, it is hard to develop a comprehensive software specification. Even if we design demand analyses and invest resources in system development, if the processes change, the software and procedures need to be redesigned, which becomes a significant challenge," Chien explained.

The Efficiency Issue Regarding Secondary Capacity Allocating Measures

Chien believes that Taiwan's power industry reform has shown significant improvements on the sales side, as evidenced by the introduction of Taipower's monthly secondary capacity allocating measures. These measures have successfully addressed the issue of unsuccessful initial pairings. However, industry experts suggest conducting secondary capacity allocation daily or weekly to enhance efficiency and flexibility, similar to the odd loans in the stock market.

Currently, Taipower manages its data using traditional Excel spreadsheets, which results in extremely low processing efficiency. Chien points out that adopting concepts from financial trading systems could improve this process. For instance, the mechanism for secondary capacity allocating could be inspired by financial market practices such as "odd loans" or "overnight loans." This would ensure the security and effectiveness of energy transactions and increase the use of renewable energy within VPPs.

Moreover, the current regulations require every energy storage system and aggregator to apply for an Electricity Business License (EBL), which burdens small-scale energy providers. The high costs of registration fees and guarantees can easily overwhelm small enterprises. Internationally, power companies are responsible for providing digital tools to small-scale users of distributed energy resources (DERs) to ensure transaction security and efficiency. Simplifying procedures and offering digital tools would help enhance grid resilience, maximize green energy, and encourage more participants in the market.

Power companies should transform into "Enablers," empowering the market and internal company processes. The "behind-the-meter" micro-energy businesses in VPPs, with their flexibility and clean energy (decarbonized or low-carbon), can bring greater resilience to the central, centralized grid while reducing the overall average carbon emission coefficient. Setting excessively high thresholds will only exclude small and micro-energy businesses, turning the market into a playground for a few large conglomerates.

The Potential Impact of the State-Owned CPPA Platform

To address the issue of offshore wind developers being unable to procure green energy due to insufficient ratings of small and medium-sized enterprises (SMEs), the Ministry of Economic Affairs proposed the establishment of a state-owned power purchase platform. However, this measure has sparked significant concern among renewable energy providers.

Chien points out that direct government intervention clearly disrupts market operations. The government may require a large company to operate the state-owned platform, claiming to only engage in wind power generation. However, this could lead users to favor wind power over solar energy, indirectly fixing wind power prices while limiting solar energy prices. When price inflation or collusion occurs in the market, the government should act as the final regulator, not a direct participant and become a major player in the market.

Chien further notes that the government's measures create a ranking issue for SMEs without credit ratings. Many SMEs do not have poor credit but have not yet been rated.

In reality, there is widespread unfamiliarity and distrust of micro-energy businesses, VPPs, and electricity retailers. "When we bid, we need to provide a guarantee of 12 million NTD, which must be deposited in a bank for 5 years, while our revenue is only 24 million NTD. This is a significant burden for SMEs. Moreover, electricity retailers are required to pay multiple guarantees, making it even more difficult for SMEs," Chien said.

Despite the bias, Naturalpower continues to address credit rating challenges and improve its business model. "Earlier this year, we signed an insurance policy with Allianz, providing risk transfer protection for our clients. If a customer fails to pay for electricity, the insurance company will compensate, ensuring the power plant's revenue. This makes us less dependent on the government's credit guarantee system."

Chien has gained deep insights by reflecting on past collaborations with large corporations such as Far Eastern and Nanshan Life Insurance. "Last year, we executed a 3 MW power transfer, which could grow to 30-50 MW by the end of this year, primarily solar power. This month, we also supplied a 130 kW small hydroelectric project, with more renewable energy sources joining in the future. We are one of the few electricity retailers in the market capable of supplying multiple types of renewable energy simultaneously."

Naturalpower has also continuously communicated with the Bureau of Standards and offshore wind developers, aiming to showcase its capabilities as a diverse electricity retailer. "Many clients support us, but we still face numerous challenges. For instance, every case involves bank financing, and the contract termination process with the bank and Taipower takes 2 months, followed by an additional 2-3 months for the power transfer process. The process is very lengthy. However, this is also a learning and adaptation process for the market."

Strict government regulations and the lack of liberalization and intelligent services often hinder capital investment and the development of new service models. "The government should provide a proper market trading framework rather than over-intervening. The market will naturally evolve into its ideal form," Chien stated.