Virtual power plants (VPPs) have received wide attention in China from central government agencies, provincial governments and, in some cases, municipal governments. Central and provincial policy directions have called for broader adoption of VPPs and successful programmes have been piloted. Despite this, VPPs generally lack sustainable revenue for achieving scale.

VPPs, in their ability to control and aggregate distribution-level resources, have the potential to be a core part of the electricity system. They could provide a low-cost way to meet the growth in electricity demand, reduce CO₂ emissions, improve local air quality, enhance local and system reliability and resilience, and reduce the need for new backup coal generation. But achieving these valuable services requires establishing sustainable revenue sources. This brief will examine how developing a full-stack compensation mechanism for VPPs, rewarding all segments of value, can sustainably scale VPPs. Much work has been done from a top-down perspective, so this paper will make some references to this while complementing existing work by going into more detail on the mechanisms to compensate local services and how they might be incorporated into revenue streams. The paper also describes progress and challenges in efforts to create revenue streams for the local grid services of VPPs in international examples.

This working paper is currently under review from stakeholders and partner organizations in China, and the forthcoming finalized version will incorporate their opinions.