The U.S. grid set a record this summer by consuming over 100,000 gigawatt-hours of electricity in a week. Electricity consumption is only expected to rise in the future. Policymakers and regulators need cost-effective solutions to meet rising energy demand and improve energy affordability. Virtual power plants (VPP) are one solution that many states are already implementing, and more states are looking to follow.
VPPs aggregate and coordinate distributed energy resources to reduce electricity demand and provide other grid services when they are needed most. VPPs’ home batteries push power onto the grid while smart thermostats and electric vehicle chargers pull less power to shave down demand peaks. At scale, this combination lowers wholesale electricity prices during high-demand hours and, ideally, reduces the need for additional investments in power generation and grid infrastructure. The result is lower bills for ratepayers.
VPPs can be coordinated quickly because distributed energy resources (DERs) already surround us and can be deployed fast. To unlock the potential of VPPs, states need to create programs or markets that incentivize DERs to provide power or reduce load at the appropriate times. The most efficient and effective way for states to unlock the benefits of VPPs at scale is to replicate successful programs that already exist. Replication makes it easier for utilities, developers, and consumers to adapt to a new program.
In addition to focusing on implementing and scaling existing VPP models, policymakers and regulators should also look to establish a long-term vision for VPPs. Establishing a long-term vision ensures that the near-term steps a state takes build toward the desired endpoint and allow for complexity to be layered onto VPP programs over time. When establishing a long-term vision for VPPs, states should consider how best to utilize market mechanisms to determine compensation for VPP services and time- and location-differentiated retail pricing.
Here are some of the key points panelists covered during the webinar:
Kevin Brehm discussed RMI’s VPP Flipbook and highlighted four VPP program design principles:
- Greater access, more options. Remove barriers to market-participant VPPs, establish utility VPPs and advance Bring Your Own Distributed Capacity solutions.
- Stack services to maximize value. Design VPPs to provide local and bulk system services and enable dual enrollment in wholesale market and utility VPPs.
- Integrate VPPs directly into planning and operations. VPPs can be leveraged to avoid system costs.
- Start simple, evolve over time. Policy makers should be pragmatic and adopt a learning mindset by implementing a workable policy and improving it over time.
National Grid’s Nick Watson highlighted that demand response programs can add different types of grid services and other complexities over time.
For example, National Grid implemented ConnectedSolutions in 2016, which aims to reduce regional peak electricity demand. In 2025, National Grid launched ConnectedSolutions+, expanding to reduce both regional and local peak electricity demand.
National Grid also identified structural changes to help achieve VPP deployment scale:
- VPP programs should send long-term price signals to make consumers more confident in the investments they are making.
- Regulators should encourage utilities to consider flexibility options like VPP programs as an alternative to investing in new infrastructure.
- There should be transparency between utility and potential participants.
- ISO-NE, utilities and the Massachusetts Department of Public Utilities should work on ways to strengthen coordination.
Zach Pollock reflected on Xcel Energy’s VPP programs and raised questions they will consider as programs evolve:
- Can utilities and market operators better coordinate between the bulk system, market system and distribution system?
- As VPP programs evolve, will interest in market-based programs grow?
- VPP programs are new. Will customers accept them?
New York State Department of Public Service’s John Rhodes identified questions that its VDER program has raised:
- Should distributed solar be compensated at the same level as battery storage when storage is more dispatchable?
- Does the compensation system encourage developers to locate systems where it is most beneficial for the grid?
- How can the department strengthen utilities’ confidence that VPPs can reduce the need for distribution grid investments?
Bronte Payne defined Sunrun’s four pillars of VPP program design:
- Customer compensation drives program participation. Compensation values can change over time.
- Start simple to get programs up and running quickly. Complexity can be added over time.
- Make programs open to individual customers, equipment manufacturers and third-party owners.
- Customers need certainty. Pilots, program caps and uncertain compensation systems all deter investment.
Review presentation slides here.