At 6:47 PM on a cold February evening in 2024, something remarkable happened in Sweden’s energy grid. Electricity demand was surging as people returned home, turned on heating, and started cooking dinner. Meanwhile, wind generation was dropping rapidly as weather patterns shifted. The grid was approaching critical stress.
Twenty years ago, this scenario would have required firing up fossil fuel peaker plants or implementing rolling blackouts. Instead, within seconds, thousands of distributed energy resources across southern Sweden automatically responded: industrial heat pumps temporarily reduced consumption, commercial building batteries began discharging, electric vehicle charging paused, and residential solar-plus-storage systems injected power into the grid.
The grid stabilized. No one experienced service interruption. No emergency power plants were needed. And most remarkably, the building owners and EV drivers barely noticed—their comfort and needs were maintained while their assets helped balance the grid.
This wasn’t science fiction. It was a Virtual Power Plant (VPP) in action.
What Is a Virtual Power Plant?
A Virtual Power Plant is exactly what it sounds like: a power plant that doesn’t physically exist as a single facility. Instead, it’s an aggregation of distributed energy resources—batteries, solar panels, electric vehicles, smart thermostats, industrial equipment—coordinated through software to act collectively as a single, flexible power source.
The key components:
Distributed Energy Resources (DERs):
- Residential and commercial solar installations
- Battery energy storage systems (home, commercial, utility-scale)
- Electric vehicles and their bidirectional charging capability
- Smart HVAC systems and heat pumps
- Industrial equipment with flexible load profiles
- Combined heat and power systems
- Backup generators (natural gas, biogas)
Aggregation Platform:
- Software that monitors, forecasts, and controls thousands of individual assets
- Real-time communication with grid operators
- Optimization algorithms balancing grid needs with asset owner preferences
- Settlement systems ensuring assets are compensated for their contributions
Grid Services:
- Frequency regulation (keeping grid at exactly 50 Hz)
- Voltage support
- Peak demand reduction
- Renewable energy integration
- Grid congestion relief
- Emergency backup capacity
The magic happens in the orchestration: while individual assets are small and intermittent, aggregated together they provide reliable, dispatchable capacity that competes with traditional power plants—but with far greater flexibility and lower environmental impact.
Why VPPs Matter Now
The energy transition isn’t just about adding solar panels and wind turbines. Those technologies are mature and cost-competitive. The hard problem is making renewable energy reliable when sun and wind are variable.
Traditional solutions—massive battery installations, hydrogen storage, keeping fossil plants on standby—are expensive and often inefficient. VPPs offer a fundamentally different approach: instead of building expensive infrastructure to accommodate renewable variability, use the distributed resources already being installed for other purposes.
The convergence of enabling factors:
Technology maturity:
- IoT sensors and smart meters are ubiquitous
- Battery costs have fallen 90% in a decade
- Communication networks are reliable and low-latency
- AI and optimization algorithms can coordinate millions of devices in real-time
Policy support:
- EU regulations increasingly require grid flexibility markets
- Sweden’s energy strategy explicitly encourages demand response
- Grid operators are allowed to contract with VPPs for balancing services
- Building codes increasingly mandate smart, grid-interactive systems
Economic incentives:
- Asset owners can monetize their flexibility without compromising their primary use case
- Grid operators save billions compared to building peaker plants
- Society benefits from cleaner air and lower emissions
- Reduced grid congestion delays expensive infrastructure upgrades
Deployment momentum:
- Millions of EVs will hit European roads in the next decade
- Solar adoption continues accelerating despite subsidy reductions
- Heat pump installations are exploding as Europe moves away from gas heating
- Industrial energy management systems are standard in modern facilities
Each of these assets, installed for its primary purpose, can become a grid resource with minimal additional cost—if the coordination layer exists to aggregate them.
VPP Architecture: How It Actually Works
Let’s demystify the technology. A VPP isn’t magic; it’s sophisticated but understandable engineering.
Layer 1: Edge Intelligence
Each connected asset needs local intelligence to respond safely and appropriately:
Smart inverters on solar installations that can modulate power output or provide reactive power for voltage support.
Battery management systems that understand state of charge, degradation curves, and safe operating parameters.
EV charging controllers that know the vehicle’s battery status, owner’s departure time, and can modulate charging rate.
Building management systems that balance comfort requirements with available flexibility.
This edge intelligence ensures VPP commands never compromise safety or primary functionality. Your EV won’t be discharged if you need it for morning commute. Your heat pump won’t leave your building freezing. Your backup generator won’t run excessively.
Layer 2: Aggregation and Optimization
The VPP platform sits between thousands of edge devices and the grid operator:
Real-time monitoring:
- Tracks state of every connected asset
- Forecasts solar production, building loads, EV charging patterns
- Monitors grid conditions and pricing signals
- Predicts upcoming flexibility needs
Optimization engine:
- Determines which assets to dispatch when
- Minimizes cost while meeting grid commitments
- Respects all owner preferences and constraints
- Adapts continuously as conditions change
Communication layer:
- Secure, reliable connections to all devices
- Redundant pathways for critical commands
- Minimal latency for time-sensitive grid services
Settlement system:
- Tracks each asset’s contribution
- Calculates compensation based on market rules
- Provides transparency to asset owners on their earnings
Layer 3: Grid Interface
The VPP presents itself to the grid operator as a single, controllable resource:
Capacity offerings:
- “I can provide 50 MW of demand reduction within 5 minutes, sustained for 4 hours”
- “I can increase consumption by 30 MW to absorb excess renewable energy”
- “I can provide 10 MW of frequency regulation for the next hour”
Performance guarantees:
- Reliability metrics comparable to traditional generation
- Predictable response times
- Measured baselines for verifying performance
Market participation:
- Bids into day-ahead and real-time markets
- Provides ancillary services (frequency, voltage, reserves)
- Participates in congestion relief programs
- Offers emergency backup capacity
From the grid operator’s perspective, a well-designed VPP is indistinguishable from a conventional power plant—except it’s cleaner, more flexible, and geographically distributed.
The Swedish Opportunity
Sweden is uniquely positioned to lead in VPP deployment.
Favorable conditions:
High renewable penetration: Sweden already gets 60%+ of electricity from renewables (hydro, wind, nuclear). Adding more variable renewables (wind, solar) increases the need for flexibility services—exactly what VPPs provide.
Distributed energy resource growth:
- Heat pump installations are accelerating as Sweden moves away from oil and gas heating
- Solar adoption is increasing despite northern latitude, driven by falling costs
- EV adoption is among Europe’s highest—expected to hit 50% of new car sales by 2025
- Swedish homes and businesses are often larger and better insulated, making thermal mass valuable for load shifting
Advanced digital infrastructure: Sweden’s broadband coverage, smart meter penetration, and digital literacy make VPP coordination technically straightforward.
Industrial sophistication: Swedish manufacturing sector has deep experience with energy-intensive processes and sophisticated control systems. Industrial VPPs could aggregate pulp mills, steel production, data centers, and mining operations.
Regulatory environment: Svenska Kraftnät (the Swedish TSO) is progressive about grid modernization and has mechanisms for DER participation in balancing markets.
But challenges remain:
Market barriers: Minimum bid sizes in some markets exclude smaller VPPs. Settlement rules designed for large generators don’t map well to distributed resources. Forecasting and metering requirements can be onerous.
Coordination complexity: Swedish electricity market spans multiple bidding zones with different congestion patterns. VPPs must navigate Svenska Kraftnät, regional DSOs, and various market operators.
Value capture: Asset owners need clear, reliable revenue streams to justify VPP participation. Current market structures often undervalue flexibility.
Data and privacy: Coordinating millions of assets requires granular data about energy usage patterns. Sweden’s strong privacy protections (GDPR) require careful design.
Solving these challenges isn’t impossible—it requires coordination between policymakers, grid operators, technology providers, and energy companies. And the economic case is compelling enough that progress is inevitable.
Business Models: Who Profits from VPPs?
For VPPs to scale, the value they create must be captured by the participants. Several business models are emerging:
1. Aggregator-Owned Model
A third-party company (e.g., AutoGrid, Voltalis) owns the VPP platform and contracts with asset owners:
Value proposition to asset owners:
- No upfront cost—the aggregator finances the enabling technology
- Passive income from allowing flexibility
- Improved asset utilization (e.g., monetizing EV battery capacity when parked)
Revenue sources for aggregator:
- Payments from grid operators for flexibility services
- Energy market arbitrage (charge when cheap, discharge when expensive)
- Capacity payments for being available
- Congestion relief payments from local DSOs
Example: A VPP aggregator pays Swedish homeowners with solar-plus-battery systems €200-500 annually to allow their batteries to provide grid services during critical hours. The homeowner’s comfort and backup power needs are always prioritized, but excess battery capacity earns money.
2. Utility-Managed Model
The local utility or grid operator builds and operates the VPP:
Advantages:
- Intimate knowledge of grid constraints and needs
- Trusted relationship with customers
- Can align VPP operation with broader grid planning
Challenges:
- Traditional utilities often lack software expertise
- Regulatory constraints on utility business models
- Potential conflicts between supply and demand-side interests
Example: Fortum or Vattenfall could offer VPP participation as a service to their electricity customers, providing bill credits in exchange for allowing load flexibility during high-price or grid stress events.
3. Distributed Ownership Model
Emerging blockchain-based approaches where VPP participants own the platform cooperatively:
Philosophy: Energy is local and should benefit local communities. Why should aggregator middlemen capture value that belongs to asset owners?
Mechanism: Smart contracts automatically compensate participants based on their contributions. Platform governance is democratic. Technology is open-source.
Status: Mostly pilot projects currently, but aligns well with Sweden’s cooperative traditions.
4. Behind-the-Meter Optimization
Rather than aggregating assets across many owners, optimize energy flows within a single organization’s portfolio:
Example: A commercial real estate company with 200 properties, each with solar, batteries, and smart HVAC. A VPP platform optimizes across the portfolio to minimize energy costs, provide grid services, and maximize solar self-consumption.
Value: Often easier to implement (single owner, single decision maker) while still providing substantial grid value.
Technical Deep Dive: Solving the Hard Problems
Building a production-grade VPP isn’t trivial. Here are the hard technical problems and how they’re being solved:
Challenge 1: Forecasting Distributed Resources
Grid operators need to trust VPP commitments. This requires accurate forecasting of solar generation, building loads, and EV charging patterns—for thousands of sites.
Solution approaches:
Machine learning models trained on historical data, weather forecasts, and usage patterns for each asset type. Modern ML (neural networks, gradient boosting) achieves 85-95% accuracy for solar, 80-90% for buildings.
Ensemble forecasting combines multiple models to quantify uncertainty, not just point estimates.
Adaptive learning continuously updates models as new data arrives.
Graceful degradation when individual assets fail or behave unexpectedly, the VPP rebalances across remaining assets rather than failing catastrophically.
Challenge 2: Real-Time Optimization at Scale
Optimizing dispatch of 100,000 assets with different constraints, capabilities, and owner preferences—in real time—is computationally demanding.
Solution approaches:
Hierarchical optimization: Pre-filter assets into tiers based on responsiveness, then solve smaller optimization problems sequentially.
Approximate methods: Perfect optimization isn’t necessary; good-enough solutions computed quickly often outperform perfect solutions computed slowly.
Edge pre-processing: Push some optimization to the edge devices so the central system only coordinates high-level allocation.
Specialized hardware: Modern VPP platforms use GPUs and custom silicon for real-time optimization workloads.
Challenge 3: Cybersecurity
A VPP is a massive attack surface: thousands of internet-connected devices controlling critical infrastructure.
Solution approaches:
Zero-trust architecture: Every command is authenticated and authorized, regardless of source.
Encrypted communications for all device connections.
Anomaly detection: AI systems monitor for unusual patterns that might indicate compromise.
Fail-safe defaults: If communication is lost or suspicious activity detected, devices revert to safe local operation.
Regular security audits and penetration testing.
Regulatory compliance: Aligning with IEC 62351 and other grid cybersecurity standards.
Challenge 4: Baseline Accuracy
To know if a VPP delivered promised load reduction, you need to know what load would have been without the intervention.
The problem: No two days are identical. Weather, schedules, and usage patterns vary.
Solution approaches:
Control groups: Some similar assets don’t participate, providing comparison.
Statistical baselines: Use historical data and regression models to predict counterfactual load.
Meter-based verification: High-resolution smart meter data allows before/after analysis.
Conservative estimation: When in doubt, underestimate savings to maintain credibility.
Challenge 5: Battery Degradation Management
Every charge/discharge cycle degrades lithium-ion batteries. VPP participation accelerates this degradation.
Solution approaches:
Degradation-aware optimization: Factor battery degradation costs into dispatch decisions. Only use a battery when grid value exceeds degradation cost.
State-of-health monitoring: Track battery degradation in real-time and adjust usage accordingly.
Owner compensation models: Pay battery owners for degradation, not just energy delivered.
Battery technology evolution: Newer battery chemistries (LFP) have much longer cycle life, reducing this concern.
Real-World VPP Examples
Tesla Virtual Power Plant (South Australia)
Scale: 50,000+ homes with Powerwall batteries Capacity: ~250 MW Services: Grid stability, frequency regulation, emergency backup Results: Successfully prevented multiple potential blackouts, provided grid services at 1/3 the cost of traditional peaker plants
Key insight: Even residential batteries, individually small, aggregate to grid-scale capacity.
Sonnen Virtual Power Plant (Germany)
Model: Homeowners with sonnenBatterie systems form a community Innovation: Peer-to-peer energy trading within VPP Benefits: Lower electricity bills, grid services revenue, enhanced resilience Scale: 10,000+ connected systems
Key insight: VPPs can enable localized energy communities, not just utility-scale grid services.
OhmConnect (California)
Focus: Demand response VPP using smart thermostats, EVs, and batteries Mechanism: Pays users to reduce consumption during grid stress Scale: 200,000+ participants Impact: Prevented rolling blackouts during California’s 2020 energy crisis
Key insight: VPPs can mobilize residential flexibility faster than building new power plants.
The Road Ahead: VPPs in 2030
Extrapolating current trends, here’s what the VPP landscape might look like in 2030:
Scale: VPPs could provide 20-30% of Sweden’s grid flexibility needs (currently <5%). Millions of Swedish homes, EVs, and buildings participating. VPPs standard in industrial energy management.
Technology evolution: Vehicle-to-grid (V2G) becomes standard in EVs, unlocking massive mobile storage. AI-powered forecasting achieves 95%+ accuracy. Edge computing pushes more intelligence to local devices. Interoperability standards enable seamless device integration.
Market maturity: Clear regulatory frameworks for VPP participation in all grid services. Standardized contracts and settlement mechanisms. Mature insurance and risk management products for VPP operators. Established track record of reliability comparable to traditional generation.
New applications: Microgrids that can island from main grid during emergencies. Dynamic grid topology that routes power through VPP assets. Integration with hydrogen production for long-duration storage. Cross-border VPPs optimizing across European interconnections.
Societal impact: Millions of people earning supplemental income from their energy assets. Dramatically reduced need for fossil fuel peaker plants. More resilient grid better able to handle climate-driven disruptions. Lower electricity costs from optimized asset utilization.
Getting Started: Practical Advice
Whether you’re a grid operator, energy company, industrial energy manager, or technology provider, here’s how to engage with VPPs:
For Industrial Energy Managers
Your facility likely has substantial flexibility: process equipment with variable schedules, thermal mass, backup generation, maybe on-site renewables.
First steps:
- Audit your load profile—when is consumption flexible vs. critical?
- Quantify your flexibility: How much load can you shift by how long?
- Understand market opportunities in your region
- Contact VPP aggregators to explore participation
- Model the business case: grid services revenue vs. operational complexity
Considerations:
- Will VPP participation require process changes?
- How does it interact with existing energy contracts?
- What’s the payback period on any enabling technology?
- Can you participate in multiple grid services markets?
For Building Owners/Managers
Commercial buildings are ideal VPP assets: predictable schedules, substantial HVAC flexibility, often have battery or solar installations.
First steps:
- Implement smart building management system if you haven’t already
- Understand your building’s thermal mass and HVAC flexibility
- Evaluate battery storage if you’re installing solar
- Connect with VPP platforms operating in Sweden
- Start with pilot project in one building before scaling
Considerations:
- Tenant comfort must never be compromised
- Payback period typically 3-5 years
- Can enhance building sustainability credentials
- May provide resilience benefits beyond grid revenue
For Energy Companies/Utilities
VPPs can be a new service offering and grid management tool.
First steps:
- Assess your customer base’s DER penetration and growth trajectory
- Evaluate build vs. buy vs. partner for VPP platform
- Design customer value proposition
- Pilot with interested customers
- Develop integration with grid operations
Considerations:
- Regulatory approval may be required
- IT and OT integration challenges
- Need to build new capabilities (data science, real-time operations)
- Cannibalization of energy sales vs. new revenue streams
For Technology Providers
The VPP ecosystem needs enabling technology: edge devices, communication platforms, optimization software, cybersecurity solutions.
Opportunities:
- Device interoperability standards and protocols
- Optimization engines for specific asset types
- Forecasting models for distributed resources
- Cybersecurity solutions for distributed energy
- User interfaces for asset owners and operators
Success factors:
- Deep understanding of both energy markets and software engineering
- Proven reliability and security
- Ability to integrate with existing systems
- Scalable architecture for millions of devices
Conclusion: Flexibility as Infrastructure
Virtual Power Plants represent a fundamental shift in how we think about electricity infrastructure. Instead of building massive centralized plants to meet peak demand that occurs a few hours per year, we coordinate the distributed resources already embedded in our homes, buildings, vehicles, and industries.
This isn’t just more efficient economically—it’s more resilient, more sustainable, and more democratic. Energy flexibility becomes a service anyone can provide, not just utilities and generators.
For Sweden, with its renewable energy ambitions, growing EV fleet, and sophisticated industrial base, VPPs offer a path to maintain grid reliability while dramatically reducing carbon emissions and infrastructure costs.
The technology is ready. The economics are favorable. The policy environment is evolving. What’s needed now is coordinated action: grid operators creating market opportunities, energy companies developing VPP offerings, asset owners participating, and technology providers building enabling solutions.
The future grid won’t look like the past: a few hundred large power plants serving passive consumers. It will be millions of active participants coordinating in real time—a true Virtual Power Plant spanning an entire society.
That future is closer than you think. And it’s being built today, one connected battery, one smart thermostat, one electric vehicle at a time.
How Hisland Brings VPP Concepts to Reality
The Virtual Power Plant described in this article isn’t theoretical for Hisland—it’s a solution domain where we’ve already delivered real-world impact.
Featured Project: Gothenburg VPP Feasibility Study
Challenge: A client in the Gothenburg region wanted to understand the viability of Sweden’s first comprehensive virtual power plant, aggregating diverse distributed energy resources.
Hisland’s Solution Providing Approach:
We didn’t just write a report. We took ownership of the entire discovery and feasibility analysis:
Analyzed interconnected energy resources across residential, commercial, and industrial sectors to identify aggregation potential
Evaluated frequency regulation opportunities specific to Svenska Kraftnät’s balancing market requirements
Built ROI models accounting for technology costs, market revenues, degradation costs, and regulatory evolution
Mapped implementation pathways from pilot to full-scale deployment
Identified hidden potential including underutilized assets and emerging value streams
Result: Our client gained a clear, actionable roadmap with quantified business case—positioning them as an innovation leader in Sweden’s sustainable energy transition.
Why Hisland for VPP and Energy Solutions:
Multidisciplinary expertise: VPPs require understanding of power systems, embedded controls, communication networks, market mechanisms, and business models. Our integrated teams handle all dimensions.
Solution Providing, not just consulting: We take accountability for delivering complete, actionable solutions—from analysis through architecture to implementation support.
Local + Global approach: Swedish project management combined with global expert resources optimizes cost-quality balance for complex energy projects.
Systems thinking: We understand VPPs aren’t just technology—they’re socio-technical systems requiring coordination across utilities, asset owners, regulators, and technology providers.
Sustainability focus: Purpose-driven solutions that genuinely advance renewable integration and resource optimization, not just greenwashing.
Practical implementation focus: We design solutions that can actually be deployed, not just elegant theories that fail in real-world conditions.
Our Energy & Smart Grid solution domain covers:
- Virtual Power Plant feasibility and implementation
- Microgrid design and integration
- Demand response systems
- Battery energy storage optimization
- EV charging infrastructure and grid integration
- Industrial energy management
- Renewable energy integration
- Grid modernization and flexibility services
From concept to deployment, Hisland’s Solution Providing model means you define the outcome you need, and we handle everything else—requirements analysis, system design, development, validation, and deployment support.
About the Author: This article is part of Hisland’s Eternal Evolution series, exploring emerging technologies reshaping energy and manufacturing sectors. The VPP feasibility study mentioned is a real Hisland project.
Exploring VPP opportunities for your organization? Hisland’s Energy & Smart Grid practice delivers complete solutions—not just advice. Whether you’re an industrial facility exploring flexibility monetization, a building owner considering battery storage, or an energy company developing VPP offerings, we can guide you from concept through implementation.
Ready to discuss your energy flexibility opportunities? Contact Hisland’s Solution Providing team. We start by understanding your specific context and challenges, then determine if VPPs offer genuine value for your situation. Let’s explore how your assets could become flexibility resources while advancing Sweden’s renewable energy future.
