Electricity systems are entering a structurally different phase of the energy transition. With electricity demand growing faster than any other final energy carrier, growth is increasingly driven by electrification of end uses, digital infrastructure, and rapid expansion of space cooling in emerging economies. Yet the binding constraint in many systems is no longer generation capacity but flexibility.

As distributed solar expands behind the meter and cooling loads intensify peak demand, particularly at the distribution level, system operators face rising congestion, sharper load profiles, and growing balancing requirements. In parallel, grid expansion remains capital-intensive, slow to permit, and fiscally challenging in many developing markets.

This is the context in which Virtual Power Plants (VPPs) are gaining strategic relevance.

From distributed assets to dispatchable portfolios

VPPs aggregate distributed energy resources like flexible demand, batteries, rooftop photovoltaic systems, and electric vehicle charging infrastructure, coordinating them as a unified, dispatchable resource.

The significance is system integration, as well-designed aggregation models can:

  • Reduce peak demand and defer distribution upgrades

  • Increase renewable hosting capacity

  • Provide balancing and ancillary services

  • Strengthen resilience during heat stress and supply disruptions

Critically, VPP architectures do not require fully liberalised markets from the outset. In emerging economies, early models can begin with utility-led demand response programmes, targeted feeder-level interventions, or resilience services for priority loads, while gradually building regulatory and market sophistication.

UNEP enabling the shift from concept to delivery

Demand-side flexibility and distributed aggregation are becoming an integral component of UNEP’s energy transition portfolio.

In 2026, UNEP will release an Implementation Guide on demand-side flexibility and Virtual Power Plants. The objective is to support governments and utilities in translating flexibility concepts into regulatory pathways, bankable project structures, and investable pipelines.

This work builds on more than a decade of UNEP engagement in decentralised energy systems and distributed infrastructure deployment.

From planning to delivery: lessons from cities

In China, UNEP and partners conducted rapid energy system assessments across multiple locations, identifying Xi’an’s Chanba Ecological District as a priority area for deeper engagement. The work combined district-wide GIS-based energy mapping with pre-feasibility studies for clean local energy solutions, including low-carbon heating and cooling systems.

UNEP and IRENA have also launched a multi-year, multi-city technical assistance programme, supported by the Government of Italy, to help Ukrainian municipalities plan and attract investment into decentralised, sustainable energy systems. The collaboration combines IRENA’s renewable resource analytics and system modelling with UNEP’s experience in integrated urban planning, safeguards and investment structuring to transform fragmented recovery efforts into coordinated pipelines that deliver cleaner, more resilient local energy systems.

On the ground, UNEP’s collaborating centre, Basel Agency for Sustainable Energy (BASE), is advancing operational pilots in Latin America.

In Colombia, collaboration with Celsia is testing customer aggregation models and quantifying flexibility value streams. In Brazil, ongoing activities assess the aggregation potential of residential and commercial prosumers, generating empirical evidence for demand response integration.

These pilots are structured to clarify readiness conditions, measurement and verification approaches, and the economic viability of distributed flexibility.

Looking ahead

As cooling demand, electrification, and distributed generation continue to reshape load curves, flexibility is becoming the defining infrastructure challenge of the next phase of the transition.

Virtual Power Plants represent a structured pathway to mobilise demand-side capacity at scale, and UNEP’s role is to help countries move from conceptual endorsement to operational integration, ensuring that flexibility markets develop in parallel with renewable expansion.