Highlighting the Strategic Importance of Virtual Power Plants at the National Level

By Xin-En Wu, Mei-Hsu Shih

As a 100% locally-based team, Ancillary Power Co., Ltd. is Taiwan's first private power aggregator and a qualified electricity trader, dedicated to technological services for new energy. The mission is to create a centralized gateway for diverse distributed energy resources to participate in the market through advanced technology, financial solutions, and service platforms. Ancillary Power was also among the first aggregators in Taiwan to seamlessly integrate with Taipower's Ancillary Service Trading Platform. To date, it has successfully facilitated over 100 MW of flexible power into the market, assisting in the annual transfer of nearly 300 million kWh of green electricity.

Ivan Cheng, CEO of Ancillary Power

Freedom Requires Rule of Law
Unregulated Freedom Risks Becoming Mere Sloganeering

"The electricity industry is highly relevant to people's livelihoods, the economy, and national defense, and therefore must be appropriately regulated. Regulation does not preclude the development of a free competitive market; the key lies in whether the regulatory bodies and market mechanisms are independent and professional," said Ivan Cheng, CEO of Ancillary Power, A fair, impartial, and transparent competitive arena is essential for the true development of a free market.

"The electricity trading platform has been in operation for about three years, and the market has seen rapid expansion. Many new participants still lack a deep understanding of power systems, the electricity industry, and related financial and engineering aspects. Although the market mechanism is designed to welcome more participants, with relatively low initial entry barriers, this has resulted in varying levels of expertise among trading firms, increasing market speculation risk and, consequently, reducing investment attractiveness. Moreover, the market operating organization is still a subsidiary of one of the departments of the single largest buyer and seller in the market, unlike the organizational level of a stock exchange or even the newly established carbon trading exchange. This makes it challenging to have effective information dissemination and public relations systems for significant market events. Continually strengthening market design and mechanisms is crucial to avoiding the loss of the primary purpose of establishing a trading market, which is to foster fair competition within the electricity industry," explained Cheng.

Regulating Demand Response and Energy Storage Ensures Fair Accountability for Market Participants

The development of the ancillary services trading platform over the past few years has proven that flexible resources can significantly enhance grid resilience. Nowadays, people hear about diverse dispatch strategies everywhere—something unheard of in the past. The recent amendments proposed to the Electricity Act, which include demand response and energy storage under the management of specified electricity enterprises, represent a crucial milestone for the advancement of Taiwan's electricity industry.

"It might be hard for those outside the energy sector to imagine that currently, grid-level energy storage providers and qualified traders in Taiwan do not have specific business categories designated when registering their business operations, " Cheng explained. This situation makes it impossible to verify through company registration numbers or industrial data whether a company has committed a substantial portion of its resources to ensure the professionalism required for participation in this market.

"Amending the law will help further regulate these emerging industries, establishing specific statuses and management systems within the sector. This will not only foster the healthy development of the market but also enhance transparency and trust across the entire industry. It aims to prevent scenarios where bad actors drive out good ones and to avoid situations where participants use market exit as a form of emotional blackmail," Cheng noted.

Balancing Feed-in Tariffs and Market Mechanisms: Prioritizing Market Strategies in the Absence of a Global Perspective

Cheng analyzed the pros and cons of the feed-in tariff (FIT) mechanism and recommended that the government consider the specific energy project when deciding which mechanism to adopt to promote the development of new energy sources. Cheng noted that the feed-in tariff system has played a vital role in countries like Germany in the early stages of renewable energy development. However, as technology has advanced and markets have matured, the drawbacks of this system have become more apparent. The FIT mechanism typically requires the government to commit to long-term financial obligations, which could strain national finances. He believes that as new energy technologies become more mature and costs decline, Taiwan should gradually shift towards market mechanisms or adopt more flexible approaches, such as Contracts for Difference (CfD), to support new energy development.

Cheng explained, "Taiwan's electricity industry is evolving into a new model, which differs significantly from traditional power sectors. Therefore, it's necessary to re-evaluate the entire industry from a higher level to promote healthier development and align with international standards to truly achieve energy transition. If we establish specifications and regulations that do not align with international standards, it effectively becomes a trade protection policy, contrary to industrial policy objectives. Claiming to develop industrial policy while actually planting the seeds of trade protectionism creates a short-term illusion of employment growth and tax revenue but often merely postpones inevitable problems, leading to companies overly dependent on government subsidies."

He urged the government to support these emerging power sectors with policies that focus on the entire industry chain; otherwise, following the old paths will never lead to new destinations. Conversely, he emphasized, "If the objective is not to support specific industries or if the industry has already matured, I personally believe we should not continue to rely on the FIT system. Market competition should be allowed to drive cost competitiveness. This is the only way to ensure that truly renewable energy remains affordable while fostering industrial development, rather than relying on long-term subsidies to sustain industry growth."

Creating a Centralized Energy Management Task Force: Rapid Resource Integration for Enhanced Energy Efficiency

Faced with the ambitious goal of achieving net zero, Cheng cautions that there is no quick fix in the short term, making energy efficiency the top priority. He suggests that Taiwan should develop centralized strategic and tactical plans for energy conservation and efficiency, rather than the current fragmented approach where different sectors plan independently. Without this perspective, it will be challenging to truly achieve the goal of prioritizing energy efficiency.

Cheng highlighted that in the development of energy conservation and Virtual Power Plants (VPP), Taiwan's current energy-saving policies and VPP development operate relatively independently, lacking a unified strategy and coordination at the central level. This fragmented planning prevents effective resource integration, hindering improvements in overall energy efficiency. This approach focuses on the individual value of various Distributed Energy Resources (DER) from isolated perspectives. In contrast, advanced countries effectively integrate different DERs using the so-called "VPP operational model" to realize the core value of VPPs. This integration allows VPPs to compete with traditional power plants in both wholesale electricity markets and ancillary services markets, thereby reducing the overall average electricity price, strengthening grid resilience, and enhancing overall energy efficiency. He recommends that the government incorporate energy conservation and VPPs into a comprehensive management framework to achieve more effective energy management outcomes.

Cheng identifies structural issues in current energy conservation policies. "While the Energy Administration serves as the central regulatory body, it relies heavily on Taipower to propose energy-saving initiatives, which is inherently contradictory, " Cheng stated. Globally, power generation and retail companies strive to secure as many generation resources as possible, and Taipower is no exception. Therefore, many countries have separated power generation, transmission, and distribution to prevent generation companies from monopolizing overall power system demand planning. Independent organizations dedicated to system reliability, such as the North American Electric Reliability Corporation (NERC) in the United States, are established to provide expert input on power system reliability and stability planning. These organizations help monopoly power companies introduce private market competition under reliability standards, thus gradually alleviating the sole responsibility for final supply obligations. Such an environment is essential for genuinely prioritizing energy conservation and efficiency improvements.

"I often encounter large energy consumers telling me to ask Taipower to stop pushing various energy-saving initiatives and focus instead on providing adequate and stable power. They pay substantial electricity bills on time, and it’s hard not to empathize with Taipower’s business units, which face challenges and frustrations in promoting these initiatives,” Cheng said.

"In light of the rapid changes in Taiwan's electricity market, Taiwan requires higher-level management and regulation to address the evolving market demands and technological challenges," Cheng stated. He urged the government to develop more integrated energy management strategies and to gradually guide the market towards maturity and stability. This approach is essential for aligning with international standards and achieving sustainable development goals.

Cheng noted, "In Taipower’s recent announcement on future domestic power demand, there was a lot of rhetoric about deep energy conservation, but no substantial, measurable, trackable, and goal-oriented plans prioritizing energy savings and efficiency improvements. Both Taipower and the Energy Administration continue to use traditional methods for future planning without fully considering the implications for energy transition." He highlighted that such data is crucial internationally for determining the sequence of new unit development. "While there is talk of energy conservation and carbon reduction, the actual reports lack the data needed to support these decisions. This inconsistency and lack of integrated strategy pose challenges for industry development."

Cheng acknowledges Taipower’s concerns, particularly with the anticipated increase in power consumption driven by AI technologies, leading Taipower to favor traditional planning approaches for building power infrastructure. This approach minimizes risk and sidesteps energy-saving issues. Given the lack of complete transparency in data, Taipower faces no significant accountability for extensive infrastructure construction.