VPP vs DERMS: What’s the Difference?

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Stuart McCafferty's picture
Lead Architect, eaaS Siemens Smart Infrastructure CTO

2021 Cleanie Award winner. Siemens Smart Infrastructure CTO Office, technologist, distributed energy expert, researcher, author, and climate change warrior. Genuinely focused on doing good for...

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  • Jan 11, 2022

VPP vs DERMS:  What’s the Difference?

By Stuart McCafferty

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.

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

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 or gateways) communicate back to a cloud-based system with status information.  The reporting can be done by a set time interval (e.g. 5 sec, 1 min, etc.) or can be event-driven “by exception” reporting when some threshold value is exceeded.  Regardless, this is a one-way communication from the Edge to the Cloud for status information rather than bidirectional communication initiated by SCADA systems, which has obvious communications advantages over SCADA polling systems.  Like other physical grid assets, VPPs can be dispatched to provide grid services via standard scheduling mechanisms.

As all this shakes out over the coming months and years, we will see more consolidation of DMS/ADMS vendors and the DERMS vendors.  Just last month (December 2021) GE announced the acquisition of Opus One.  This is one of numerous acquisitions and we will continue to see more consolidation.

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 VPPs use. The VPP vendors recognize that the utilities need the DER visualization capability 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 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.  As the Figure above implies, VPPs vs DERMS is not an “either/or” strategy for utilities.  VPPs and DERMS systems could – and SHOULD – work together.  2022 will be a big year for VPPs with the recognition of the potential clean energy grid services they can provide and new prospects for third parties and utilities.

Paul Molitor's picture
Paul Molitor on Jan 22, 2022

Bravo Stu ... great article.  My personal belief is that the market tie-ins become increasingly important as DERs become larger and more prevalent; especially for states/markets that have strong commercial incentives for renewables.

Stuart McCafferty's picture
Stuart McCafferty on Feb 16, 2022

Agreed, Paul.  The ability for DER owners/aggregators to participate in markets will drive new business opportunities and even greater DER adoption - which is exactly what we want.  The FERC order was one of those profound "shots heard round the world" that will change the way that regular people and savvy businesspeople look at participating in the electricity ecosystem.

Stuart McCafferty's picture
Thank Stuart for the Post!
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