Description: In many locations, the cost of electricity is increasing at alarming rates. This results not only from increased demand but also from when that electricity is needed. Relatively short periods of peak demand drive capital expenditure for transmission lines, “peaker plants” – which may generate electricity for only a few hours a year – and other related grid infrastructure. Peak demand for electricity in the U.S. is projected to increase from 800 gigawatts (GW) in 2024 to approximately 900 GW in 2030, according to the North American Electric Reliability Corporation, due to demand growth from data centers, manufacturing, and end-use electrification. Announced and anticipated retirements of aging fossil-fuel units are projected to add another 100 GW to needed peak capacity by 2030. Virtual Power Plants (VPPs) are a cost-effective solution to help meet growing peak demand and near-term grid challenges, and stimulate growth of distributed energy resources (DERs).

Using advanced technologies, VPPs aggregate, coordinate and remotely control DERs, which include smart appliances such as thermostats, water heaters, and HVAC systems, electric vehicles and their chargers, solar arrays, storage batteries, and flexible commercial and industrial loads. Basic VPPs–one directional–have demonstrated the ability to reduce or defer consumption by up to 5% during peak demand periods by remotely adjusting smart appliances, charging schedules and flexible loads. More advanced VPPs–bi-directional–augment supply by drawing from DERs such as rooftop solar and batteries when needed to help meet demand. Customers who enroll their DERs in a VPP receive economic benefits, including upfront and performance incentives. Importantly, VPPs benefit all ratepayers, not just participating customers, by reducing the need for costly peaker plants. This lowers energy costs overall and creates a more stable power grid with fewer outages while also reducing carbon emissions. By 2035, RMI estimates VPPs could prevent emission of 12-28 million tons of carbon, which is 2% to 4% of total projected U.S. power sector emissions.

States and municipalities across the country have taken action to accelerate adoption of VPPs and are already realizing benefits for their citizens. State legislation can require investor-owned utilities to implement VPP programs at specific capacity levels. Local leaders can ease permitting and zoning rules to facilitate growth in DERs, and establish pilot programs to create VPPs benefiting specific communities.

Examples of VPPs in Action
VPPs range from relatively basic in their operations and technology to sophisticated, integrated systems. For example:

• National Grid established ConnectedSolutions, a basic “bring your own device” (BYOD) VPP in MA and NY, in under four months with less than $1 million in upfront investment. As of 2024, 100,000 customers were enrolled in ConnectedSolutions, delivering up to 250 megawatts (MW) of system-level peak shaving benefits in exchange for a mix of upfront and performance incentives.
• SunRun, a third-party aggregator in California’s Demand Side Grid Support program with more than 16,000 home solar and battery energy storage systems, supplied Pacific Gas & Electric Company (PG&E) with up to 32 MW during peak times in summer 2023 and averaged 48 MW during a heatwave in July 2024, topping out at 54 MW. Customers are compensated for sharing their stored solar energy with the grid during peak demand periods and SunRun is paid for dispatching a portion of the customer’s stored energy.
• Rocky Mountain Power developed its Wattsmart battery VPP in the newly constructed Soleil Lofts, a 600-unit apartment complex with 5 MW of rooftop solar panels and a battery storage system able to deliver 12.6 megawatt-hours (MWh) of usable energy. The VPP integrates directly into the utility’s grid operations system, can respond to changes in energy demand in as little as three seconds, and may be used anytime, not just in peak hours or peak seasons. Finished in 2022 at a cost of about $34 million, Wattsmart VPP has a near-term goal of reaching 100 MW.
• In Texas, an energy start-up called Base Power installs its home batteries in customers’ residences, acts as their electricity retailer, and bids the decentralized battery fleet into the Energy Reliability Council of Texas (ERCOT) energy markets. Launched in May 2024, Base Power has installed more than 1,000 home batteries, which translates to around 30 MWh of stored energy, and plans to expand to 250 MWh by the end of 2025.

Note: Power from solar panels is measured in MW, which captures the amount of energy that can be generated at any given moment. Energy from storage batteries is measured in MWh, which captures the amount of energy that can be stored or delivered over time.

VPP Capacity
Wood Mackenzie’s 2024 North America VPP Market Report estimates there is 33 GW of capacity in approximately 500 VPPs in North America, mostly in the U.S. As of 2024, most U.S. states have VPPs, led by California, New York, Texas and Massachusetts. The U.S. Department of Energy estimates 80 to 160 GW of VPP capacity will be needed by 2030 to meet projected peak demand growth. In addition, Federal Energy Regulatory Commission (FERC) Order 2222 requires regional transmission operators and independent system operators to allow DERs and VPPs to participate in wholesale markets by 2026, opening up additional potential for VPP growth.

State Actions to Support VPPs
While utilities can implement VPPs on their own initiative, favorable state and local policies can accelerate implementation. In keeping with state policy objectives to modernize and decarbonize the grid, state-level actions often focus on creating incentives and requirements for utilities to expand their VPP programs. According to the NC Clean Energy Technology Center (NCCETC) and the Smart Electric Power Alliance (SEPA) report, “The 50 States of Virtual Power Plants and Supporting Distributed Energy Resources: 2024 State Policy Snapshot,” 38 states and the District of Columbia advanced policies and regulatory actions in 2024 related to VPPs and DER aggregations.

State legislators and regulators took action last year to: increase customer adoption of DERs and enrollment in VPPs, establish VPP-enabling requirements for utilities, and create large-scale or statewide VPP frameworks, including participation models in wholesale markets.

• Increase DER deployment and enrollment in VPPs. In Massachusetts, the Department of Public Utilities has established a performance incentive mechanism based on goals for energy efficiency programs including ConnectedSolutions, with a total incentive of $190 million of profit potential over the 2025-2027 period. In Texas, ERCOT filed a revised governing document for Phase 2 of the Aggregated DER (ADER) program in January 2024, amending some validation processes and allowing ancillary service ADERs to participate. Phase 3 of the program is expected in 2025 with greater capacity limits, allowing the ADER program to continue to grow and evolve.
• Establish VPP-enabling requirements for utilities. In Washington, a law passed in March 2024 required utilities to submit integrated system plans that align with state clean energy goals and emission reduction targets, a requirement that enables greater VPP consideration and development. In California, Senate Bill 1305 would have required each load-serving entity to procure an increasing percentage of its resource adequacy obligation from VPPs. The requirement began at 2.5% by 2028 and increased to 15% by 2035. Introduced in 2024, the bill died in committee and has not been reintroduced.
• Create statewide VPP frameworks, including participation models in wholesale markets. In Maryland, the 2024 DRIVE Act directed the Public Service Commission to establish rules for VPP pilot programs, with all investor-owned utilities required to file proposed programs by July 2025. In Colorado, The Modernize Energy Distribution Act, enacted in May 2024, required Xcel Energy, the largest investor-owned utility in the state, to propose VPP programs and a tariff for performance-based compensation by February 1, 2025. Multiple states initiated actions investigating wholesale market participation of DER aggregations.

Local Actions to Support VPPs
Local actions focus largely on community-level VPP pilot programs driven by community-based organizations such as electric cooperatives and Community Choice Aggregators (CCAs), as well as local VPP-enabling regulations. Examples of community-based VPP programs include:

• San Diego Community Power’s Solar Battery Savings Program provides upfront, stackable incentives for no-cost solar and batteries to qualified communities. The program incentivizes customers to adopt residential batteries for daily dispatch to realize $5M of resource adequacy savings.
• In the MCE Richmond VPP pilot, this CCA–with the support of the California Energy Commission–is retrofitting, rebuilding, and selling housing in underserved communities and installing DERs for selected residential, municipal, commercial and industrial customers. All DERs at these locations are being connected digitally to create the VPP, and MCE will bid the aggregated capacity into the California Independent System Operator (CAISO) markets.
• In North Carolina, Roanoke Cooperative (RC), which operates in the fourth lowest income Congressional district in the U.S., launched the Upgrade to $ave program in 2016 to reduce energy bills for its customers. RC paid upfront for all cost-effective energy upgrades at members’ residences and recovered its costs through a fixed, monthly cost recovery charge that was lower than the estimated savings from the upgrades on an annual basis. Participating members reduced electricity usage by approximately 20% through the upgrades, and the utility realized peak demand savings of about 20% during summer and winter peaks. RC currently offers Smart Energy Savings programs to enroll customers with smart thermostats and smart water heaters and automatically adjusts consumption during peak demand periods.

Other VPP-enabling local actions focus on ensuring favorable rules exist for growing DERs within a community, such as zoning, permitting, and land use regulations. One useful resource in this regard is SolarAPP+, a web-based platform developed by the National Renewable Energy Laboratory that local jurisdictions can adopt to streamline the permitting process for residential solar installations. Additionally, local officials can ensure government DERs are enrolled in VPPs and proactively communicate the benefits to residential, commercial and industrial constituents.

Goal: Improve affordability, reliability and resilience of the electric grid while reducing carbon emissions in the power sector.