Solar panels, batteries, electric vehicles, and smart thermostats have long been sprinkled across the United States, serving needs for their owners — but not always coordinating to meet the broader demands of the power grid.
Recently, though, that has begun to change. Virtual power plants, which are essentially software systems that tap into distributed energy resources to balance the grid when demand is soaring, are gathering steam.
Earlier this month, virtual power plant giant CPower Energy announced that its network of distributed solar and batteries delivered upward of 38 gigawatt-hours of load relief to the U.S. electrical system from January through September of this year. That’s a 137% surge over all of 2024, and the year isn’t over. CPower customers are now contributing enough electricity to power more than 8 million homes during a peak event, which is roughly the equivalent of every household in Texas.
“VPPs are having a bit of a moment right now,” Michael Smith, CPower’s chief executive, told Latitude Media. “It’s really well deserved. We’ve been doing this for a long time, but finally you’re seeing the recognition that this is a hugely important piece of the energy transition puzzle.”
Recent research from energy nonprofit RMI found that nearly all of the next decade’s forecast grid demand “could be met by fast, affordable, flexible solutions” such as VPPs. Where once the most basic technology VPPs use was employed to curb demand during hot summer days when air conditioners stressed the electrical system, the technology has matured to the point where experts increasingly see it as the best strategy for quickly making more room available on the grid for data centers desperate for power.
“We were very much a summer type of event. You had hot summers. The grid operator wanted to turn down the load instead of turning on generation. So they made some calls to big users. The whole thing turned out to be very binary, very manual,” Smith said. “VPPs have developed out of this to become a much more finesse-driven tool… capable of big-mover outcomes for our economy.”
CPower is hardly the only example. At the end of March, VPP provider Voltus was dispatching assets in its network 362 days a year. By August, it was dispatching every day and becoming “a backbone part of the grid,” Voltus CEO Dana Guernsey told Latitude Media.
Distributed energy resources have evolved significantly since the early days of demand response, when a grid operator would call up a large load, like a factory, and request a few hours of reduced demand during peak times. As Catalyst host Shayle Kann explained in a recent podcast episode with Guernsey, today the technology has dramatically improved: “They’re automated, deployed frequently across the country, and include everything from EVs and thermostats to sophisticated management systems at paper mills and data centers.”
When discussing how to meet soaring demand for electricity on timescales and budgets that can work in a recent episode of Open Circuit, co-host Jigar Shah, the former head of the Department of Energy’s Loan Programs Office, pointed out that the national utilization average for existing energy infrastructure is at just 40%, down from 60% at the start of this century. That’s simply inefficient. But VPPs could offer a way to tap into more of that existing infrastructure.
“We are in a magical place right now with load growth where we can resolve that situation, get back to 60% utilization by 2030,” Shah said.
“That’s the moment we’re in right now,” he continued. He cautioned that only considering expensive new generating assets rather than tapping into existing distributed resources would only make the latter option look more affordable over time. “If you fail to meet the moment because you insist on investing a trillion or $1.1 trillion, then you’re going to make electricity so unaffordable that the DERs are going to be the cheapest way for people to serve themselves.”
New commercial models
To get there, RMI laid out three potential new models for commercializing VPPs. In a report published last week, to which CPower contributed, RMI outlined the options:
- Model 1: A pass-through funding for utility managed VPPs, where the VPP makes space on the grid for a large load like a data center to connect, then that power user pays the utility, which in turn pays the VPP.
- Model 2: A VPP capacity transfer, where the VPP guarantees space on the grid to the utility or grid operator, thereby allowing large loads to come online via transferable capacity credits, leading the data center or other power user to pay the VPP directly.
- Model 3: VPPs as reliability enforcement, wherein large loads guarantee capacity to the utility, the utility then gives large loads the green light to hook up to the grid, and the large load pays the VPP directly.
“Data centers and other large loads cannot wait years for traditional generation and infrastructure upgrades,” the RMI researchers concluded in the report. “Virtual power plants offer a faster, cheaper, and more flexible alternative.”
States such as California, Nevada, and Oregon are all considering new ways to bundle generation and large loads. In the Golden State specifically, the energy management software company WattCarbon launched a new program last month to encourage data centers and other large loads to invest in VPPs nearby, as Latitude Media reported. It’s a natural next step for VPPs, Smith said.
“Regulators are looking at this issue. The Department of Energy is looking at this issue,” he said. “It’s kind of the hot thing right now.”
