States Bet on Virtual Power Plants to Cut Grid Costs

In recent years, the United States has increasingly embraced virtual power plants (VPPs) as a means to reduce grid costs and improve overall system resilience. VPPs are networks of small-scale electricity generation resources, such as household batteries, electric vehicles, and solar installations, that can collectively supply electricity to the grid. When coordinated, these resources can provide many of the same services as traditional power plants.

The Department of Energy's (DoE) Loan Programs Office is actively supporting the deployment of VPPs nationwide to enhance grid flexibility, affordability, clean energy, and resilience as the economy transitions towards electrification. VPPs address various energy challenges, including rising costs, interconnection backlogs, peak-demand increases, and distribution-system congestion.

Vermont's largest utility, Green Mountain Power (GMP), has introduced a VPP initiative aimed at combating frequent power outages caused by extreme weather events. This program involves leasing two batteries to participants at a cost of $55 per month over a 10-year period, which is cheaper than purchasing a backup generator. Over 5,500 Vermont residents have invested in similar battery systems, providing backup power during outages and allowing households to participate in the VPP.

According to Wood Mackenzie's internal analysis, the U.S. now has over 40 GW of VPP capacity, which could potentially grow to 160 GW by 2030, equivalent to about one-fifth of the country's expected peak energy demand. In Vermont, GMP has become the state's largest power source under its battery lease program, with enrollment increasing steadily in recent years, including a significant jump after state regulators lifted the cap in 2023.

GMP aims to eliminate all power outages by 2030 through the battery program and infrastructure improvements, such as undergrounding power lines. The utility is also considering providing thousands of customers in high-outage areas with batteries at no cost, with pilot projects already underway.

Artificial intelligence (AI) is accelerating VPP deployment, as tech companies invest heavily in developing power sources to support their growing data center needs. However, VPPs offer a more immediate power source, potentially saving consumers over $100 billion over the next decade if utilities increase grid utilization by just 10%. AI-powered systems can analyze grid conditions hour by hour, allowing for greater flexibility and reduced reliance on costly peak energy generation.

Several states, including Virginia and Minnesota, have committed to VPP pilots, with Virginia planning a 450-MW VPP and Minnesota committing to 200 MW of power. These programs can be deployed in six months to a year, significantly faster than traditional power infrastructure projects. However, government incentives are crucial to encourage utilities to develop VPP programs instead of investing in new infrastructure if the goal is to accelerate deployment.

In California, Governor Gavin Newsom recently signed legislation that is expected to accelerate VPP rollout, surprising many utilities who previously opposed the measure.