Virtual power plants are increasingly capturing the attention of lawmakers as state, territorial and tribal governments seek more dependable energy grids.
Essentially, VPPs are several smaller energy sources that are aggregated and remotely controlled to relieve stress on the central grid during peak energy use. The U.S. Energy Information Administration projects the global demand for energy will increase by at least 33% by 2050 across all energy sectors.
VPPs offer a way to incorporate distributed energy resources in a controlled and optimized manner to conserve energy, reduce peak demand, promote decarbonization and offer consumers more control over their energy consumption.
What Are Virtual Power Plants?
Virtual power plants are an interconnected and distributed network of a wide range of energy resources managed by cloud-based data control centers. Typically, distributed energy resources are comprised of residential generators, such as rooftop solar panels or EV chargers. Commercial and industrial VPPs are also used and typically manage systems such as smart thermostats, smart water heaters and energy storage units. VPPs can remotely control the supply and demand of energy within the plant system, for instance by storing excess solar energy into a battery pack for use during peak demand. Typically, owners of distributed energy resources participating in a VPP will receive incentives, such as discounted energy rates. VPP capacity on the grid was estimated to be 30-60 gigawatts as of October 2024.
Components of a VPP
A vital component of a VPP is the energy storage system and the integrated information and communication technology. The energy storage system allows produced energy to be stored for later use. Meanwhile, information and communication technology allow for real-time data on the flow of energy between DER systems. This allows grid operators the ability to estimate energy demands and control the energy consumption levels at peak demand times. VPPs provide grid operators with a new tool to reduce grid strain and potential grid blackouts. Grid operators also have the option to sell excess energy or energy storage space provided by VPPs representing an additional benefit to grid operators and participants.
Potential Benefits and Drawbacks of VPPs
VPPs offer numerous advantages, especially for middle- or low-income households using rebates. For instance, a utility or government agency might provide a rebate on the purchase of an energy source with the condition the source is linked to a VPP. The DTE Smart Charge program is an example of this type of rebate program. These types of programs offer a mutually beneficial solution for governments seeking backup energy sources and for households needing a new energy appliance but lacking the financial means. Furthermore, with additional renewable energy generation operating as DERs, VPPs can help accelerate decarbonization and electrification efforts, reduce air pollution, and benefit overall health. Moreover, VPPs empower consumers through direct involvement in their own energy production and demand management.
VPPs, however, face many challenges. Because VPPs are a newer method of grid reliability, the tools necessary to integrate them across various locations are inconsistent. Grid operators may not have the funds, technology or oversight necessary to implement a successful program. Comprehensive policy frameworks and targeted funding to address the costs involved in establishing, operating and protecting VPPs are also needed.
Funding Pathways
The Department of Energy Loan Program’s Office offers a few different paths to access financing for VPP projects. All eligible projects are covered under Title 17. For example, VPPs which use innovative technologies that show a meaningful reduction in emissions, or projects which receive considerable financial support from a state energy financing institution would be eligible under Title 17. Additionally, projects which use a preexisting structure may also be covered under the Energy Infrastructure Reinvestment Projects portion of Title 17. The Tribal Energy Financing Program may also cover VPP implementation for federally recognized tribal areas.