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Energy Currents
A Blog by Enerdynamics

Are Virtual Power Plants Ready to Replace Traditional Generation?

by Bob Shively, Enerdynamics President and Lead Facilitator

If you learned that a technology could save U.S. utilities $15 to $35 billion in capacity investment over 10 years and it could provide resource adequacy at a net utility cost that is only 40% of the cost of a gas peaker and 60% of the cost of a battery, would you be interested? It seems like a no-brainer. And according to a recent study by the Brattle group, this is what Virtual Power Plants (VPPs) offer.

What is a VPP?

A VPP is a collection of distributed energy resources (DERs) that are aggregated to create a block of capacity that can participate in electricity markets or provide grid support. The assets are aggregated by a utility or an energy service provider using a centralized distributed energy resource management system (DERM) that monitors and controls the various assets and interacts with grid operators or electricity markets to use the assets as resources.

Key technologies that can be combined in a VPP include flexible loads, rooftop solar, small generators, and distributed batteries. Key flexible loads include smart thermostats, electric vehicles (EVs), commercial building automation systems, smart water heaters, and industrial or municipal pumps and motors. A VPP may include a dozen to a few thousand devices. These devices are owned by customers and may be within residential, commercial, industrial, or municipal buildings.  

Why the interest in VPPs?

Our grid is in the midst of a dramatic transition with variable renewable supply sources growing rapidly at the same time that electrification and DERs are altering load shapes. To avoid spending large amounts of money on building new flexible generation and beefing up the distribution grid, alternative approaches are required. VPPs offer the capability to not only provide services traditionally handled by utility-scale power plants, but also to create demand flexibility that can reduce loads when grids are stressed or when prices are high and increase load when prices are low or excess renewable supply is available. Services VPPs have the capability to provide include:

  • Capacity – Supply that is available year-round when needed to serve peak demand
  • Energy – kWh put onto the grid when supply is tight or prices are high
  • Ancillary services – Various services required to support the grid including frequency regulation, reactive power to support voltage, and reserves
  • Non-wire alternatives – Distribution circuit capacity to substitute for the need to upgrade distribution lines or substations

Here’s is an example of how a VPP might provide tools to adjust load profiles to better match demand with cheap renewable power and to avoid creating large peaks on distribution circuits. The first graph shows a circuit without any use of DER flexibility. In this case, distribution engineers must invest in circuit upgrades to handle backflow in the middle of the day and high load peaks in the early evening. Note that loads stay high well into the night due to EV charging, meaning that transformers may need to be upgraded to tolerate lack of cooling at night.

Now suppose we use a combination of distributed storage, pre-cooling of buildings, controlled EV charging, and controlled hot water heating to shift loads into the middle of the day and away from the peak hours and the later night. This allows us to soak up excess solar production in the middle of the day and to reduce evening and nighttime peaks.

Is use of VPPs actually happening?

VPPs have been used for a number of years for demand response programs run by utilities or by aggregators participating in wholesale markets facilitated by Independent System Operators (ISOs). VPPs using additional technologies or large numbers of end-use participants have emerged in recent years. Here are examples identified in the Brattle study:


According to Brattle the number of end-use devices available for potential participation in VPPs will grow rapidly in the next decade. They forecast homes with smart thermostats to increase from 10% to 34%, residential rooftop solar to increase from 27 GW to 83 GW, behind-the-meter battery capacity to increase from 2 GW to 27 GW, and light-duty EVs to increase from 3 million to 26 million.

Certainly, barriers to ubiquitous VPPs exist. Market design allowing full VPP participation in wholesale markets is still in its infancy as:

  • most ISOs are moving slowly to implement changes mandated by FERC’s Decision 2222
  • standards for device communications have been developed by IEEE and other organizations but are not yet widely used by manufacturers
  • residential consumer uptake on home automation systems has been slow
  •  state regulatory and utility support for VPPs is mixed
  • many consumers do not have access to sufficient financial incentives to participate.

So, there is lots of work remaining to do before VPPs become widespread.

But as electric rates continue to rise (the average electric rate in the U.S. increased by 13% between 2021 and 2022 according to the Energy Information Administration) regulators, utilities, and consumers are likely to become increasingly focused on affordability. VPPs may become a key tool in the fight to hold electric costs down.

Does your organization need to learn more about distributed energy resources? Enerdynamics offers a live virtual four-hour seminar titled Distributed Energy Resources and the Electric Grid. Contact us at 800-876-7654 ext. 700 or


Virtual Power Plant , VPP , Capacity investment , Resource adequacy ,