Clean Energy 101: Virtual Power Plants

Virtual power plants may be our most important and most overlooked domestic energy resource.

Last summer, California’s record-breaking, grid-straining heat wave forced the state government to send text messages asking residents for emergency, voluntary energy conservation. And it worked. Energy demand dropped; blackouts were avoided.

California’s successful response illustrates how devices in our homes and businesses — air conditioners, EV chargers, dryers, and more, can add up to have a big impact.

It also illustrates a concerning paradox: While a handful of power plant owners are paid millions to keep the grid operating, millions of homeowners were paid nothing to stabilize the grid when it really mattered.

The current system is neither just nor efficient, but there is hope. Despite millions of homeowners not receiving compensation for their energy conservation efforts, hundreds of thousands of Californians were paid for the services they provided. The grid operator in California wasn’t just hoping those customers would show-up and voluntarily cut demand — they were counting on them to do so, and paying them accordingly. Those customers had partnered with companies like OhmConnect, SunRun, Leap, Autogrid, Voltus, Tesla, and others to join with their neighbors to form “virtual power plants.”

A virtual power plant (VPP) is a collection of small-scale energy resources that, aggregated together and coordinated with grid operations, can provide the same kind of reliability and economic value to the grid as traditional power plants. If homes and businesses can save the grid from going dark for free just based off a text message, imagine what they could do if there were a proper market for VPPs.

What Is a VPP?

At its core, a VPP is comprised of hundreds or thousands of households and businesses that offer the latent potential of their thermostats, electric vehicles (EVs), appliances, batteries, and solar arrays to support the grid. These devices can be flexibly charged, discharged, or managed to meet grid needs. When these devices are aggregated and coordinated, they can provide many of the same energy services (capacity, energy, ancillary services) as a traditional power plant.

The components of a VPP can include electric vehicles (EVs) and chargers, heat pumps, home appliances, HVAC equipment, batteries, plug loads, and industrial mechanical equipment. Single-family homes, multi-family homes, offices, stores, factories, cars, trucks, and buses can all participate in a VPP.

VPPs Aggregate Distributed, Grid-Interactive Electric Devices

How VPPs Can Address Key Grid Challenges

VPPs can help regulators, utility planners or operators, and other grid stakeholders address key challenges facing the grid, including reliability, affordability, decarbonization, electrification, and health and equity. Here’s how:

1. Reliability: From California to Texas to Puerto Rico, we’re seeing the risks of extreme weather and other reliability and resilience threats in every part of the country. VPPs are already helping provide resilience when the grid is down, and offer numerous other unique reliability benefits that traditional power plants do not: VPPs can be built and deployed rapidly, sited near loads (and can therefore bypass transmission and distribution constraints), and can turn electric devices into resilient power supplies for homes and critical facilities during grid outages.
2. Affordability: With increasing inflation and volatile natural gas prices, customers need affordable energy solutions more than ever. Homes and businesses that participate in VPPs receive direct compensation, and those that do not still experience lower bills resulting from deferred transmission, distribution, and generation capacity investments that typically get passed on to customers. VPPs can further reduce wholesale energy and fuel costs by shifting demand away from high-cost peaking resources and toward low- or no-marginal cost resources.
3. Decarbonization: The power of VPPs to create more efficient grid use can go a long way in reducing CO₂. And the climate benefits of VPPs will only increase over time as the United States deploys more electric devices, brings more variable renewable energy on line, and retires coal generation. By 2050, VPPs could avoid 44–59 million metric tons of CO₂ per year.
4. Electrification: Over the coming decades, increasing adoption of electrified technologies such as heat pumps and electric vehicles will mean we must accommodate sustained load growth in the electric system. VPPs enable cost-effective electrification by avoiding transmission, distribution, and generation capacity bottlenecks and providing customers additional revenue streams to incentive the adoption of electric technologies. Enrolling in a VPP enables the devices already in peoples’ homes and businesses to actively participate in powering their communities and contribute to demand flexibility during times of increased load.
5. Health and Equity: We increasingly rely on aging fossil fuel power plants to meet demand during peak hours — plants that have been tied to significant adverse health outcomes that have an outsize impact on Black and low-income populations. VPPs present an opportunity to avoid adverse health impacts by decreasing reliance on fossil fuel-powered generators.

Catalyzing and Scaling VPPs

After a decade of steady advances, VPPs may be poised for explosive growth. To unleash the full potential of VPPs and overcome policy and planning barriers to market growth, RMI has launched the Virtual Power Plant Partnership (VP3). VP3 brings industry voices together to catalyze change in the necessary policies, regulations, and market rules required to let VPPs scale to their full potential.

With the guidance and support of its members, VP3 will build a future where businesses, households, and communities are empowered (and compensated) through VPPs to help ensure affordable energy, clean air, and a reliable electricity grid.

To learn more about RMI’s VPP Partnership (VP3), download our research brief and visit VP3.io.