PJM’s emergency backstop procurement for data centers could prove a key turning point for the deployment of virtual power plants and distributed energy resources. But whether the auction, which is the energy market’s attempt to meet the ravenous power demands of data centers, can give VPPs a long-anticipated boost will ultimately come down to the technical design details currently being hammered out in the stakeholder process.
PJM published its proposed framework for the auction in mid-April, outlining a plan to procure 15 gigawatts of new capacity by June 2031. According to Dana Guernsey, co-founder and CEO of Voltus, the auction could unlock well over 10 GW of flexible, behind-the-meter capacity, and accelerate deployment of distributed storage — depending on where the final design lands on a few key elements.
The first key thing for stakeholders to iron out is what counts as “net new” VPP capacity for the purposes of the emergency procurement. That’s less cut and dried with distributed resources than with a new greenfield power plant. Additional VPP capacity is often built at sites that already exist in PJM’s database, Guernsey explained. For example, many commercial and industrial facilities that already participate in demand response may install new behind-the-meter assets like energy storage.
A new storage system should be considered “net new” capacity, even though it’s at a location that PJM already has in its system. If there’s a purchase order or a new physical asset being installed, she added, then the capacity is analogous to a generator uprate — and the latter would be treated as new capacity.
If PJM defines “net new” too narrowly, it risks excluding some of the cheapest, fastest-to-deploy options from the procurement process, Guernsey said.
The other major design question has to do with the planning requirements. In the proposed framework, DER aggregators must demonstrate full commercial readiness by providing a list of all participating sites, with contracts for up to 15 years of participation. Meanwhile, new generation only needs to show a pathway to commercial readiness, such as a plan to obtain the appropriate interconnection agreement.
If that language isn’t fixed, VPPs and DERs may technically be allowed to participate in the auction, but blocked in practice. Portfolios are constantly evolving, as sites, technologies, and partners are added and retired. It’s simply not realistic to lock a homeowner or small business into a contract that runs from 2031 to 2045, Guernsey said.
Traditional generators don’t have the same burden; as proposed, they would just have to prove that they can build the plant, via site control, major equipment purchase orders, and a credible construction schedule. DER and VPP developers are asking PJM for the same planning standard it already uses for demand response: credible “sell offer plans” — documented strategies for how they’ll assemble and deliver their committed capacity — plus financial insurance, as opposed to requiring fully locked-in retail contracts decades in advance.
“These are the details we hope the stakeholder process will change and get right, because it will directly contribute to ratepayer affordability and reliability,” Guernsey said.
A massive unlock
Notably, the AI buildout is already leveraging behind-the-meter assets, both in PJM and around the country. Voltus, which launched the country’s first bring-your-own-capacity solution last fall, is in essence already participating in bilateral negotiations to sell capacity directly to data centers. That BYOC approach means hyperscalers commit to financing a VPP program in the region where they’re building a data center, and then Voltus delivers that contracted capacity directly to the load-serving entity. And earlier this year Voltus moved to expand residential assets in its largely commercial and industrial BYOC portfolio in PJM, via a partnership with Octopus Energy U.S.
However, a significant prerequisite for VPP expansion — whether via out-of-market programs or the backstop auction — is better data access.
In October, Voltus and Mission:data, a coalition focused on consumer energy data, filed a complaint against PJM at FERC, arguing that PJM’s current data access barriers effectively stall residential participation, and that the market is creating a lopsided playing field by requiring curtailment service providers to submit load reduction meter data, despite their having little to no meaningful access to it.
The complaint asks FERC to require PJM to update its rules to allow “statistical sampling” — a method that involves checking energy savings of a small, representative group of homes rather than every single one.,
Without policy changes that either mandate streamlined data sharing, or as the complaint requests, statistical sampling allowances, the backstop procurement will remain out of reach for the very homeowners who could provide the most flexible load, Guernsey said: “We hope that now might be the moment where FERC rules on this in order to enable more residential participation in the [reliability backstop procurement].”
Time for advocacy
The auction was first proposed by the White House and a coalition of bipartisan governors last fall in what was a dramatic intervention into the market, which has been grappling with gridlock in the transmission queue and record-high prices in its capacity auction.
PJM released its proposed framework for the auction in mid-April, outlining a two-phase approach that would include a primary, bilateral contracting phase between load and new generation, followed by an RTO-administered procurement for any additional megawatts still needed.
But the participation of VPPs and DERs wasn’t a foregone conclusion.
Load management was effectively excluded from the procurement in PJM’s first draft, Guernsey said. Only after extensive advocacy — which brought together a somewhat unlikely coalition that included Voltus, Verrus, Calibrant, and Mainspring — were behind-the-meter capacity and load management built in.
That coalition argued that excluding load management resources based on their location in relation to the meter was discriminatory. Behind-the-meter resources, they explained, require less infrastructure, enable loads to come online faster, and wouldn’t crowd the interconnection queue.
The VPP industry is at a critical juncture, Guernsey said. PJM, as the largest grid operator in the country, often sets a precedent for other markets, making its handling of VPPs extremely consequential nationwide, and even globally, she added. Its potential impact can’t be overstated: “This is an auction that’s going to impact all of us for the next 15 to 20 years…I can’t think of a more important time to sweat the details.”
To date, there’s been surprisingly few voices from the world of VPPs and DERs in the process, Guernsey said, and without more stakeholders in the room, it’s possible for rules to implicitly, favor conventional generation.
Ground-level policy efforts are really the only way to resolve those hurdles, Guernsey said. And it’s not just something VPP providers should be paying attention to, she added: “Industrial groups, ratepayer protection groups, and large loads alike all share goals in bringing online faster and more affordable capacity…and leveraging the grid we’ve already built.”
