The pitch for residential virtual power plants in the data center era is straightforward: Home batteries, smart thermostats, heat pumps, and EV chargers can be deployed in a matter of months, and if you deploy thousands of them, they offer firm capacity.
Residential aggregators are quick to highlight just how much potential capacity is already out there. And they hope that the combination of electricity cost concerns and the massive energy needs of the AI boom has created a window of opportunity for VPPs to scale.
But despite recent dispatch milestones and the potential interest of deep-pocketed tech companies to finance deployments, many of the barriers that have kept residential VPPs in pilot mode to date haven’t gone anywhere. At Latitude Media’s inaugural Flex Summit in Austin earlier this month, grid planners outlined their lingering skepticism that the industry can overcome those barriers quickly enough for residential VPPs to play a meaningful role in meeting load growth.
One ongoing credibility gap for VPPs broadly is whether they can provide enough long-term reliability to supplant major grid infrastructure, explained Brandy Chambers, director of distributed energy solutions at New England’s Eversource Energy.
“A substation project takes 10 years from initial conception through construction,” Chambers said. “My team is very concerned that if we defer or eliminate a major project, relying on these DER assets, what happens if they’re not there in 10 years? We don’t have a plan B. We cannot overnight build that substation.”
Even utilities that have leaned heavily into home batteries and flexible load were vocal about the challenges. Josh Castonguay, vice president and chief innovation officer at Vermont’s Green Mountain Power, which is already using home batteries to phase out fossil peakers and defer transmission upgrades, responded to a question about “the most underappreciated risk” in the market today by pointing to the need to ensure a program is accessible to customers of varying income levels, comfort with technology, and homeownership status.
We’re always trying to figure out ways that everybody can participate,” Castonguay said. To be successful in the long-term, programs need to lower costs for all customers on a system, not just those with specific home energy assets, he added.
The plan for beating barriers to scale
Challenges aside, VPP companies are seizing the opportunity to pitch themselves as a meaningful part of the near-term distributed energy mix for load growth.
“Today, to build a nuclear power plant takes decades,” Sunrun’s chief revenue officer Paul Dickson told the audience at Flex Summit. “We deploy in a single year the same peak power output as a nuclear power plant every 11 months.” Single-digit-kilowatt contributions don’t do much, he added, “but when you do it a million times…the scale is one of the most adaptable, meaningful resources sitting on the American grid today.”
On the firmness and reliability front, the industry is increasingly moving toward “diversity around the VPP’s composition,” explained Ryan Hledik, a principal at the Brattle Group. The idea is that a greater the range of devices, the more grid problems a VPP can solve, and . That’s what’s driving a lot of the partnerships and acquisitions in the market today, he added.
To address enrollment bottlenecks and customer churn, longstanding problems for VPPs, residential aggregators are leaning heavily on OEMs and opt-out programs. That includes embedding enrollment directly into the setup flow for devices like smart thermostats — and, when need be, asking them to choose not to participate.
Sarah Russell-Smith, general manager of flexibility at Octopus Energy and senior vice president at Uplight, said the companies have seen “a lot more momentum” in opt-out programs, including for demand response. It’s also “a gateway drug” to more advanced flexibility programs, she added.
But when it comes to addressing the long-term reliability gap that Chambers mentioned, she thinks regulators also have a role to play.
Regulators could help bring in providers and OEM partners on the front-end by providing “longer-terms and more certainty,” said Chambers. In Connecticut, there’s a 10-year incentive guarantee for residential battery storage, “and we hear all the time that the Connecticut model is much more conducive to development.”
But addressing Castonguay’s accessibility challenge is more complicated, noted Erika Diamond, chief revenue officer at EnergyHub, an asset-light VPP provider.
“We want to design these programs that include everyone, and I think that’s really nice from a PR perspective for the utility, but we have to then be willing to take some risks that not everything will show up in the same way,” Diamond said.
Installers and OEMs are at different levels of maturity, so the risk in opening up programs is sacrificing data quality and speed, she added: “We take some risk when we open it up to everybody, but I think there’s also a lot to be gained there.”
