As senior regulatory staff in Connecticut and an energy policy official in Massachusetts, one question consistently haunted me: What more should we be doing to unlock the value of virtual power plants (VPPs)?   

The constant barrage of Utility Dive and Canary Media articles highlighting new VPP programs, novel and interesting VPP applications and other exciting VPP developments left me with a nagging sense that we should be doing more. When I dug deeper, the sheer volume of information and thought leadership on VPPs left me overwhelmed and unsure where to start.  

Joining the Regulatory Assistance Project (RAP) has helped me step back. With space comes clarity—policymakers need not start from scratch or include every possible VPP use case when designing a VPP program. Policymakers should instead look to replicate existing models, where possible, and layer in more complex and precise offerings over time.  

Replicating Existing Models

Basic VPP programs are not witchcraft; they are essentially the traditional demand response programs that have existed since the 1980s. These programs provide compensation to distributed energy resources (DERs), like smart thermostats and home batteries, to produce power or reduce electricity demand at times when power generation costs are high. Their basic design is straightforward and easily implemented by utilities. The magic of modern VPP programs is in their incorporation of multiple DER technologies, level of coordination and scale of participation, which allows VPPs to more meaningfully reduce grid costs.   

A state looking to establish a new VPP program or evaluate its existing demand response programs can look to the RMI VPP Flipbook to find relevant state examples and common VPP program design elements. Replicating VPP programs has several added treats for timely implementation, as it can address utility operational questions, lower soft costs for developers to operate in a new state or new program and provide insights on likely customer adoption and behavior. 

All customers benefit from the wizardry of VPP programs when the compensation provided to resources reflects the value they provide.  Ideally, performance-based compensation in VPP programs should be tied to the electric system benefits provided. This has not necessarily always been the case with early VPP programs but will be increasingly important as these programs persist and proliferate.  

Longer-Term Vision

Determining how and when your state’s VPP program should evolve is a bit spookier. Start by developing a long-term vision that defines the end state that provides the most meaningful benefits for ghouls, goblins, and the grid alike. The long-term vision should consider whether and how to implement mechanisms that introduce competition at the wholesale- and distribution-level and expose retail customers to increasingly dynamic and location-differentiated pricing. These features more precisely capture system and locational value, increasing the benefits VPPs provide to all customers. (See Lynne Kiesling’s thought leadership for wicked insights and devilish questions for your long-term vision.)   

A good potion takes time to brew, and no state will deliver its ideal VPP end state overnight. A clear long-term vision can help identify the necessary ingredients and when they should be added. And like any good potion-maker, policymakers will need to remain nimble, ready to add new ingredients aligned with this long-term vision as circumstances and technologies evolve.  A potent additional ingredient that states and utilities are increasingly incorporating is avoided or deferred distribution system upgrades. ConnectedSolutions+, Xcel Colorado’s Aggregator Virtual Power Plant Program, and New York’s Value Stack mechanism each provide an example of how distribution system value can be incorporated into VPP compensation structures. A robust list of potential VPP and load flexibility potion ingredients can be found in Massachusetts’ recent Peak Potential Study. 

Conjuring the Path Forward

VPPs are key to unlocking the capacity of the distributed energy resources that surround us. Implementing and scaling basic VPP programs is the first step. Identifying a long-term vision and implementing greater precision and complexity over time are steps 2 through 100. Taking one step at a time is all that’s needed to unleash the magic (and value) of VPPs.