Virtual power plant adoption has been slower than many in the industry once expected or hoped. Most distributed energy resources located in homes are small and not easily accessed and orchestrated. Convincing customers to use even those few kilowatts as grid resources can be a lift. But at least when it comes to distributed storage, interest among both utilities and state policymakers is finally growing. And the sector has both load growth and national concern over energy prices to thank.
As the value of distributed capacity grows, the industry is focused on lowering the barrier to entry for homeowners, testing out programs that prioritize getting batteries into home up front, and growing the underlying megawatts available for VPP programs. That means new utility programs, updates to existing programs, and emerging third-party aggregations; models differ based on who owns the battery, who pays the up-front cost, and who captures its grid and tax-credit value. Last week, New Jersey utility Public Service Electric & Gas Company unveiled a new framework that tackles both the high upfront cost of a battery, plus the ongoing financing.
But despite the creativity of some programs and pilots, home battery aggregation will likely coalesce around the third-party ownership model, which has emerged as one of the primary models for residential solar, said Isshu Kikuma, an energy storage analyst at BloombergNEF.
Third-party owned solar has historically been controversial — accused of deceptive sales tactics, overstated savings, and unauthorized enrollment in grid services programs. But Kikuma believes the third-party ownership model will come out on top as distributed storage continues to scale, in part because of the end of the 25D tax credit.
That credit, which was expanded by the Inflation Reduction Act, allowed homeowners to claim a credit worth up to 30% of equipment and installation costs for home energy systems. The One Big Beautiful Bill, passed by Congress last summer, ended the credits early, removing that option for homeowners at the end of last year.
Home batteries, however, may still qualify for separate, technology-neutral 48E investment tax credits under third-party ownership models, Kikuma explained. That could allow a system owner to incorporate tax-credit value into project financing, then use it to lower costs for customers — and hopefully to expand the megawatts available to VPP programs.
“We expect the TPO model to dominate the U.S. market,” he told Latitude Media via email.
TPO dominance?
When it comes to using the third-party model for standalone storage, the sector hasn’t yet scaled widely, so it remains to be seen if using a version of the model for storage can avoid the same hurdles that have plagued the solar industry.
Of late, however, TPO has been getting attention in large part to investor excitement around Base Power. The startup, which designs, manufactures, installs, and operates its own batteries, has now raised more than $2 billion and is valued at $13 billion.
In Texas’ competitive retail market, Base acts as both battery and retail electricity provider. But it can also serve as a third-party battery owner and fleet operator: financing, installing, owning, and maintaining batteries while the utility contracts for access to the aggregated fleet as a VPP resource. Under a recently announced program with a Texas electric cooperative, for example, Base will install up to 50 MW of home batteries for customers who receive a discounted installation fee; the coop covers Base’s usual $19 monthly membership fee.
Base isn’t the first to offer a third-party owned battery subscription — thought it is perhaps the best-funded and highest-valued. Palmetto, a North Carolina-based consumer energy company, recently launched a battery-only subscription option as well. As part of that new offering, Palmetto owns the battery for the 12-year lease term, while the customer pays a flat monthly subscription.
Sunrun, meanwhile, has long used third-party ownership to finance rooftop solar, often paired with batteries. The company aggregates participating systems into VPPs.
Creative approaches
Despite the buzz around Base Power, many utilities around the country are deploying programs that challenge the third-party dominance assumption. New Jersey utility PSE&G became the latest example of this trend earlier in August, announcing incentives and financing for customer-sited batteries.
The new GridSmart program will leverage a model in which the utility helps with the financing, but customers ultimately own their batteries: Homeowners receive a $5,000 incentive toward purchase and installation of a home battery, and can pay the remaining balance through 0% on-bill financing. In exchange, those batteries will be integrated into PSE&G’s residential VPP portfolio and leveraged to reduce grid demand during peak periods.
Utility rebates for customer-owned batteries aren’t new; some companies have offered similar incentives for years. But PSE&G’s new program is somewhat unique in that the utility itself is mitigating the ongoing financing, making the program overall more accessible.
Initially, GridSmart will install Tesla and Enphase batteries, and the utility plans to use it to evaluate how storage performs for things like peak demand reduction, reliability, and resiliency. “What we learn will help inform how residential VPP programs could be developed in the future,” a PSE&G spokesperson told Latitude Media.
Another model, which has been on the market longer, sees utilities providing and then owning batteries during the program.
Evergy, for example, launched a pilot in Missouri in 2023, in which it owns and operates a small number of home batteries, and customers pay a $10 fee to lease them. When the program ends later this year, customers will have the option to take over full ownership of the battery as long as they provide Evergy with access and control, purchase the battery at its depreciated value, or have it removed entirely.
Meanwhile in Vermont, regulators approved a tariffed lease program for Green Mountain Power, under which the utility installs and leases two batteries per home, while retaining the ability to use them as a grid resource. GMP’s program initially relied on Tesla Powerwalls, but has since expanded to include more vendors.
