Location; Location; Location　Space × Place × Location: Principles and Challenges of Energy Management

By Xin-En Wu

In Taiwan, behind-the-meter virtual power plants (VPPs) remain in a transitional phase, where policy frameworks and market mechanisms are still gradually taking shape. At the same time, the system faces mounting pressure from the energy transition, electricity congestion, localized feeder overloading, and peak demand that is not only concentrated in specific time windows but also clustered in specific geographic areas—most notably within the North and East grid regions.

Public discourse in Taiwan has long confined energy debates to questions such as "Is there enough electricity?" or "Will power supply be sufficient?" Yet the more fundamental issue that deserves attention is whether electricity can actually be delivered smoothly to where it is most needed. While the global mainstream trajectory of virtual power plant (VPP) development emphasizes enabling every kilowatt-hour to be traded, dispatched, and monetized, under Taiwan's current institutional constraints, behind-the-meter assets must first return to the basics of energy efficiency (EE) and demand-side management before they can meaningfully enter the market.

Only when individual sites become "smarter"—with transparent electricity use and real dispatch capability— can they form a viable foundation for subsequent market participation.

This reframes the localized mission of behind- the-meter VPPs in Taiwan: rather than being designed solely for market arbitrage, their primary role is to enable electricity to be used more intelligently within each site and to ensure that power can reach the most congested endpoints of the grid.

In other words, behind-the-meter VPPs represent a bidirectional pathway—beginning with energy efficiency and spatial management, and ultimately leading toward energy supply-demand transactions.

The Core of Energy Management Lies in Spatial Management

Drawing on his frontline experience in both economics and industry, Wen-Sheng Tseng argues that the true crux of energy management―and of energy-related challenges more broadly―lies in spatial management. Grid risks, he emphasizes, rarely stem from a single piece of equipment or a single energy source. Instead, they arise from imbalanced spatial distribution and misalignment between where resources are located and how the system responds.

"Improving energy efficiency must proceed simultaneously across three dimensions—generation, grid, and end-use," Wen-sheng Tseng, Chairman of Taiwan Power Company (Taipower) stated at the outset, clearly defining Taipower's energy efficiency management principles.

On the generation side, Taipower has continued to modernize power equipment in recent years while maintaining the reliability of existing assets to prevent efficiency degradation caused by aging. High-efficiency new generation units—such as combined-cycle natural gas plants—have become the backbone of power supply, while older units are coordinated with renewable energy through dispatch to optimize overall system efficiency.

One of the most frequently amplified—and often misunderstood—metrics in renewable energy discussions is "penetration rate." Headlines proclaiming that "renewables exceeded 50% today" are commonly accompanied by either optimism or alarm.

"When discussing the 'penetration rate' of renewable energy, more precise definitions are in fact required, because penetration rate refers only to a momentary or time-specific proportion. Its meaning is fundamentally different from long-term metrics such as annual or daily average shares. Relying solely on the term 'penetration rate' often fails to adequately reflect actual operating conditions. Taking Taiwan as an example, when assessed on a single day or during specific time periods, instantaneous renewable energy penetration has already exceeded 50 percent during the Lunar New Year; however, a high share of renewable energy also implies fewer conventional generating units operating in parallel, leading to reduced—or even insufficient—system inertia. As a result, the power system must simultaneously confront challenges of supply–demand volatility and frequency oscillations, and therefore requires sufficient system inertia to maintain frequency stability and prevent imbalance. In other words, as renewable energy penetration continues to increase, the power system as a whole must simultaneously strengthen inertia provision and dispatch capability— neither can be absent." Tseng emphasized.

Taipower began planning response measures as early as 2022, introducing Automatic Frequency Control (AFC) energy storage systems. These front-of-the-meter storage resources demonstrated their value during the April 3, 2024 earthquake, where rapid- response storage mitigated short-term shocks and compensated for the slower startup characteristics of conventional generators, significantly enhancing grid resilience.

Tseng observes that one of the most frequently amplified―and often misunderstood―metrics in Taiwan's renewable energy debate is "penetration rate." Whenever headlines proclaim that renewable energy has surpassed 50 percent of total generation on a given day, they are often accompanied by emotionally charged interpretations, ranging from optimism to alarm.

Tseng further explained that Taiwan's lowest electricity demand occurs during specific periods, such as the Lunar New Year, making negative electricity pricing unlikely in the short term. Meanwhile, grid and generation assets require maintenance, which Taipower schedules during periods of minimal grid stress— typically low-load intervals—combined with energy storage dispatch. This temporal coordination prevents excessive concentration of renewable output within a single moment and stabilizes instantaneous penetration levels.

"The objective is to continuously increase the share of renewable generation while smoothing peaks and distributing supply and demand more evenly—balancing system stability with energy economics," Tseng noted.

"In the short term, however, the most efficient and immediately implementable strategy remains on the demand side," he added. "Improving end-use energy efficiency is critical."

On the grid side, regulation is shifting away from a model that relied solely on adjustments at the generation end toward one that encourages participation by the demand side as well. Through the principle of "local generation, local consumption," transmission distances and losses can be reduced, thereby further enhancing overall energy utilization efficiency. This has long been a core direction that Taipower has pursued and continues to promote.

In certain areas where the grid is relatively congested, Taipower hopes that newly added large-scale, energy- intensive industries—such as data centers and computing centers—can be located as close as possible to power sources, paired with diversified generation to facilitate effective power coupling. This approach can significantly reduce cross-regional transmission requirements and line losses, and in substantive terms represents a direct means of improving energy efficiency.

Tseng concluded that grid risks rarely stem from a single asset or energy source. Rather, they arise from spatial imbalances and misalignment between system response and geographic distribution.