Chris’ Corner: What’s a Virtual Power Plant, Really?

Happy full-blown summer, Reader, and welcome back. Last month, I talked about your electric vehicle (EV) as a power plant. This month, I’m taking the idea one step further. Under the right controls, a collection of batteries can work together as a virtual power plant (VPP), supporting the electric grid. The VPP is one of the most quietly transformative ideas in energy right now. VPPs are already operating across the country, helping balance the power grid by coordinating thousands of distributed energy resources. Once you understand how they work, you may start looking at the grid differently. Here’s how it all comes together.

So, What is It?

Picture a traditional power plant. A building, a smokestack (or a turbine or a dam), one location, one owner, switched on by the utility when demand climbs. A virtual power plant is none of those things. There’s no building, no smokestack, no centralized location you can point to on a map. Incidentally, this is why it’s called “virtual.” Instead, a VPP uses software to coordinate thousands of little energy resources scattered across a region, allowing them to operate, from the grid’s point of view, like a single power plant.

These little resources carry a wonderfully uncool industry name: distributed energy resources, or DERs. They include rooftop solar, home batteries, EVs and their chargers, smart thermostats, smart water heaters, and commercial building systems. On their own, none of these resources matter much to a grid operator. One EV battery doesn’t help much, but aggregate 10,000 of them, coordinate when they charge, discharge, or reduce demand, and you create something with the capacity of a midsize power plant, built almost entirely from equipment customers already own.

Wood Mackenzie counts more than 500 of these projects already operating across North America.

How It Actually Works

Here’s where it gets fun.

Step one is enrollment. A utility or a third-party operator signs up customers who own eligible devices, usually by offering an upfront incentive or ongoing payments (I’ll get to how EV drivers get paid next month, I promise). You opt in, connect your battery or thermostat to their platform, and go back to living your life.

Step two is the brain. All of these enrolled devices communicate with software the industry calls a DERMS, a distributed energy resource management system. (Funny enough, I hate this acronym much less than DER. Go figure.) The DERMS knows, in close to real time, how much each device can contribute, when it’s available, and how much the whole fleet can deliver on command. My team has its own software platform called RI Shifted Energy DERMS.

Step three is the event. Picture a brutal afternoon in July. It’s 5 p.m., every air conditioner in the state is humming, and demand is about to outrun supply. In the traditional model, the utility fires up a peaker plant, an expensive, usually gas-fired plant that operates only a few dozen hours each year at high cost and high emissions. In the VPP model, the operator sends a signal through DERMS instead. Thousands of home batteries discharge a little. Thousands of thermostats adjust up a couple degrees. EV chargers pause for an hour. Water heaters wait their turn. Each contribution is almost nothing. Together, they can provide the equivalent output of a peaker plant, without burning additional fuel.

Step four is verification and payment. It’s less glamorous but is honestly where a huge share of the real work happens. The operator measures each device’s actual contribution against what it likely would have done otherwise and then pays participants accordingly. This measurement problem is harder than it sounds, which is a big part of what keeps me and my team busy.

Why Utilities Are Suddenly Very Excited

For years, VPPs were a curiosity being piloted across the country. Utilities are famously cautious to trust anything new—and that’s not a criticism. The grid is not where you want to move fast and break things. So why the sudden enthusiasm?

The first driver: The old playbook is running out of runway. Electricity demand is climbing for the first time in a generation, driven by data centers and the broad electrification of everything. Meanwhile, the usual tools are jammed. New gas turbines are backlogged through at least 2028, more than two terawatts of proposed generation sit stuck in interconnection queues where average waits now exceed five years, and transformer lead times have doubled. When you can’t build new infrastructure fast, a resource you can assemble from equipment already sitting in the field starts looking awfully good. Otherwise, we’re risking blackouts and brownouts.

The second driver: There’s a $10 billion opportunity. VPPs can provide grid services at a lower cost than many traditional alternatives. Research from The Brattle Group found that buying peaking capacity from a residential VPP can run about 40% cheaper than a utility-scale battery and roughly 60% cheaper than a gas peaker plant. Looking at the bigger picture, the Department of Energy’s roadmap estimates that scaling national VPP capacity anywhere from 80 to 160 gigawatts by 2030, enough to cover 10 to 20% of peak demand, may save around $10 billion a year in grid costs. Now that’s a lot of money.

The third driver: A VPP can be targeted. If one neighborhood’s feeder is reaching its limits and would otherwise need a costly upgrade, you can recruit and dispatch DERs in that specific area. National Grid recently launched the first U.S. VPP to pay extra for batteries sited on capacity-constrained feeders. This changes what a home battery is worth, depending on where it happens to sit. It's flexibility a traditional power plant simply can’t offer.

The fourth driver: Momentum is building. Residential battery enrollment is growing rapidly, and regulators are increasingly recognizing the role these resources can play. We’ve reached roughly 40 gigawatts of VPP capacity in the U.S., climbing toward that 80-to-160 target, with residential battery enrollments jumping more than 150% in a single year and data center demand alone driving a 33% jump in new deployments. States are beginning to incorporate VPPs into energy policy, turning what was once a promising concept into a practical grid tool. Virginia now requires a 450-megawatt VPP pilot, Maryland utilities are building permanent ratepayer-funded programs, and analysts tracked more than 150 supportive regulatory actions in a single year.

The Honest Part: Reliability is Still an Issue

I won’t pretend this is a solved problem, because untangling these knots is exactly what people in my corner of the industry work on every day.

The hardest part is trust more than technology. Utilities need a VPP to perform like a traditional power plant. If they call for 50 megawatts at 5 p.m., they need 50 megawatts delivered reliably, every time. One analysis this year scored even the most advanced VPPs at about a two out of four on that kind of plant-grade dependability. This gap is closing fast as the software matures, but it’s also why many programs remain in pilot mode. Nearly half of U.S. VPPs are still pilots, and converting them into permanent, funded programs is one of the biggest challenges facing the industry.

Not every state is moving in the same direction either. (California recently cut funding for what had been the country’s largest program.) But the overall direction is clear. The economic argument is too strong, the grid pressure too intense, and the number of connected devices in garages and basements keeps growing.

Why I Care, and Why You Might Too

Here’s the part that keeps me in this work. Two-thirds of the country’s peaker plants are located near income-eligible neighborhoods, which means the dirtiest, least efficient way we generate electricity impacts the people with the least influence over it. A grid that relies more on distributed, clean flexibility and less on peaker plants is a healthier and more equitable grid, and it happens to be cheaper too.

It also changes your relationship with the grid itself. In a VPP world, your thermostat, your car, and your battery become meaningful parts of the system that keeps everyone’s lights on. That’s a different way to belong to a power grid, and I find it kind of cool, even after doing this for a living.

Next month, since I’ve now teased it twice and owe you, I’ll finally break down the money: the specific ways VPP participants get paid, what enrollment tends to be worth, and whether signing up makes sense for you.