What is a virtual power plant?

The individual benefits of clean energy homes are well-documented. When someone installs solar panels on their roof, or a smart thermostat in their home, or an electric vehicle charger in their garage, they might enjoy lower energy bills, greater energy independence, and a lower risk of blackouts in extreme weather. Those benefits, coupled with federal clean energy tax credits, are bringing more and more new distributed energy resources (DERs) onto the grid each year. 

But as all these batteries, energy generators, and smart technologies come online, there is increasing untapped potential when it comes to how these systems could work together. It turns out, when homes and businesses with energy resources come together, they can create something that is greater than the sum of its parts.

That’s where virtual power plants come in 

Virtual power plants (VPPs) are local networks of distributed energy resources that are aggregated by a central authority (usually an electric utility company) and that, when brought together, can help support the electrical grid. People who have things like electric vehicles (EVs), solar panels, home battery storage systems, or smart thermostats can choose to enroll their devices in a VPP if one is available in their area, and are compensated for their participation. 

Just like other types of power plants, VPPs can provide a variety of benefits to the grid. Many existing VPPs work primarily to lower strain on the grid at times of high energy demand. Imagine, for instance, that you own an EV and your neighbor uses a smart thermostat. The two of you decide to enroll your devices in your local utility’s virtual power plant program. During the hottest times of day in the summer, when electricity demand spikes to power A/C units, your utility might  instruct your neighbor’s smart thermostat to raise the temperature a couple degrees, and instruct your EV charger to charge a little slower until later in the day. In return, both you and your neighbor receive credit on your energy bills for helping out the grid. These coordinated actions across the system reduce demand on the grid, helping to balance energy supply and demand at critical moments, and reduce the risk of blackouts.

In a well-managed VPP, these energy savings can really add up. On a hot day in Massachusetts last summer, local utilities activated their VPP, ConnectedSolutions, to help manage high energy demand. The VPP was able to shed 375 megawatts off the peak demand, which provided roughly the same benefit to the grid as adding a medium-sized gas plant. 

VPPs also have the potential to go beyond just managing energy demand, and can actually provide electrons to the grid like a traditional power plant. With enough storage resources on the grid, the power stored by things like home solar + storage systems and EV batteries can be aggregated and exported onto the grid when demand for energy is high. 

This second type of VPP is gaining popularity. In Puerto Rico, for example, where solar + storage systems became popular after emerging as a resiliency solution during Hurricane Maria, the local utility worked with clean energy developer Sunrun to enroll over 1800 people in a VPP program that taps into home batteries and brings their stored clean power onto the grid when blackout risk is high. People who choose to participate in the program can control how much of their stored energy is available to the grid, and how much they want to retain for their own homes. 

Good for the grid, good for the environment, and good for the consumer. 

Energy demand is growing across the country. More electrification of homes and vehicles, increased A/C use in the summer due to more frequent and severe heat waves, and growing data center energy demand are all projected to put significant strain on the electrical grid. At the same time, older fossil fuel plants are retiring. 

VPPs provide a modern solution to this energy demand problem that is good for our air quality, the environment, and our wallets. Right now, VPPs provide 33GW of power in North America. If we tripled our current VPP capacity by 2030, we could address 10-20% of growing peak demand. Doing so would save us from having to build expensive, polluting peaker plants, which would save an estimated $10-20 billion in annual grid costs. And much of the money we did spend would flow back to the consumers who participate and provide value to the grid. 

VPPs are also an excellent way to get the most benefit out of federal and state tax credits and incentives for smart technologies and home solar. As more and more families take advantage of these credits and bring distributed resources online, robust VPP programs can ensure that everyone on the electricity grid can benefit from these investments. 

To see if enrolling in a virtual power plant is an option in your area, check out this public database of active VPPs.