VPP vs DERMS: What’s the Difference? (Refresh)
By Stuart McCafferty and Dr. Thomas Kiessling
Disclaimer:
The viewpoints in this article are the personal views of the author(s) and in no way are meant to imply or represent those of the companies they work for.
This article was previously published on Energy Central in January, 2022. Stu spoke with Matt Chester and Audra Drazga about refreshing the article for their Special Issue Series on DERMS. He teamed up with Siemens Smart Infrastructure CTO, Dr. Thomas Kiessling, to expand the conversation and gain some additional insights to this rapidly-growing market. The article is still relevant and there are a few thoughts to include that did not make it into the original article. Enjoy and be sure to provide feedback in the comments section.
Aren’t they the same thing?
Virtual Power Plants (VPP) and Distributed Energy Resource Management Systems (DERMS) do pretty much the same thing: Both systems are used to manage and coordinate with DERs and integrate with grid operations and market systems to provide grid services. Both can support the coordination with individual or grouped DERs.
However, there are some subtle differences worth noting. First, let’s start with a few definitions.
- DERMS – A utility enterprise system owned and operated by the utility that enables the monitoring, management, coordination, and optimization of numerous DERs owned by the utility, its customers, or third-party aggregators to support grid operations and energy market participation.
- VPP – A cloud-based system that enables the monitoring, management, coordination, and optimization of numerous DERs operated by a utility, a vendor, a customer, or a third-party aggregator (called DER Aggregators) for a variety of business purposes.
Utility DERMS Systems
If you read the above definitions closely, you will recognize some of those subtle differences. To be very clear, DERMS are utility Enterprise solutions that are owned by the utility. They are designed to work with other centralized utility operation systems – SCADA, Distribution Management Systems (DMS), Energy Management Systems (EMS), and Outage Management Systems (OMS). Although not commonly used, DERMS systems can also theoretically support integration with energy market systems. In order to be interoperable with SCADA and other centralized command and control utility operations systems, they are designed with a centralized command and control approach – they have to be. Also, due to their relationship with legacy utility operations systems, DERMS systems are designed from the utility Enterprise to the Edge - even though DERMS vendors will say that the opposite is true. Costs for implementing and integrating DERMS systems are in the millions of dollars.
Figure 1: DER Aggregator Landscape Perspective vs. DERMS Landscape Perspective
Utility DERMS systems can perform direct control of DER assets or can coordinate with DER Aggregators for indirect control of grouped assets. Typically, DERMS direct control of DER assets utilize grid-scale (large) DERs such as PV farms, wind, and energy storage assets. These DER assets are usually owned by the utility or a utility partner. In the US, control is commonly performed using the IEEE 1815 (DNP3) protocol using the utility’s operational SCADA system for communication.
Commercial Virtual Power Plant Systems
VPPs are a commercial solution and can be operated by utilities or third-party DER Aggregators. They are designed from the Edge in. Intelligent Edge devices (inverters, gateways, or microgrid controllers) are used to communicate with backend cloud systems. Forecasting and optimization tools can be cloud or edge-based to schedule distributed energy assets to meet customer objectives/use cases that include energy efficiency (energy bill reduction), decarbonization, energy resilience, and revenue generation. Like other physical grid assets, VPPs can be dispatched to provide grid services via standard scheduling mechanisms. VPP vendors may use a variety of different protocols for DER communications – proprietary, Modbus, OPC-UA, DNP3, BaCnet, etc. – but, IEEE 2030.5 (formerly named Smart Energy Profile – SEP) is becoming a popular message-based protocol to provide DER dispatch schedules and status information.
A good example of a VPP is a building or even a group of buildings. EV, PV, and battery fleets are other potential VPP options. Consider a building with flexible loads and/or on-site generation and storage. The building owner or a third-party aggregator acting on behalf of the building owner can use this flexibility to provide grid services to utilities through voluntary Utility Customer Programs or to participate in energy markets. A common use of VPP buildings is in load reduction – or demand response services – where the building owner is paid or his bill is reduced for the benefit of reducing grid loads during high demand events. VPPs can also support energy arbitrage through Energy as a Service (EaaS) providers like Siemens. Energy arbitrage can reduce customer bills for Time of Use (TOU) tariffs to purchase grid power when costs are low and reduce or eliminate the use of grid power when costs are high using flexible loads, batteries, solar, or gensets. These are the typical use cases, but VPPs may potentially support other grid services such as frequency and voltage regulation, to name a few.
What’s next?
As Figure 1 implies, VPPs versus DERMS is not an “either/or” strategy for utilities. VPPs and DERMS systems could – and SHOULD – work together. 2023-24 will be big years for VPPs with the recognition of the potential clean energy grid services they can provide and new prospects for third parties and utilities.
As all this shakes out over the coming months and years, we will see more consolidation of DMS/ADMS vendors and DERMS vendors. Many people believe that DERMS and ADMS systems will merge and there is ongoing work to do just that by most of the ADMS vendors. Many smaller startup DERMS companies have been acquired by larger ADMS vendors and we will continue to see more consolidation in this space.
The differences between VPPs and DERMS will continue to blur as each camp sees opportunities and competition with one another. The DERMS vendors recognize the scaling challenges they have using the centralized SCADA system for DER communications and are moving towards similar messaging communications such as the ones that VPPs use. The VPP vendors recognize that the utilities need the DER visualization capability, especially with distribution grid situational awareness, and are working to grow that capability. In a few years, it may be difficult to distinguish the difference between how DERMS systems and VPP systems communicate and scale with large numbers of non-utility-owned DER.
In the meantime, we will continue to see interest in VPPs from both third-party DER aggregators and utilities. The idea of a utility assuming a DER Aggregator role has been a popular topic within many utilities. The idea fits nicely with the FERC Order 2222 requirement to allow bulk market participation for DER Aggregators. It also fits nicely with a utility’s ambition to easily integrate Behind the Meter (BTM) customer-owned DER assets into operations, meeting clean energy Resource Allocation requirements, and achieving a utility's own potential market participation opportunities as the DER Aggregator actor.
For more information about VPPs, DERMS, and EnergyIoT, be sure to check out Stu’s book, “Energy IoT: From Theory to Practice” at
