Are VPPs the Next MVP of Clean Tech?
Close your eyes, what do you picture when I say the words ‘power plant’? You’re probably thinking of smokestacks, maybe cooling towers like in the Simpsons, perhaps a large hydroelectric dam? One of the huge benefits of full electrification of the grid is our ability to dynamically adjust between multiple power sources. As part of this we’ll see the rise of the Virtual Power Plants (VPP’s), yes power plants via the cloud.
Why Do We Need More Things In The Cloud?
The challenge for any power utility is balancing supply and demand to maintain the grid’s frequency, typically 60 Hz. Excess demand causes frequency drops, risking failures in sensitive equipment and potentially leading to rolling blackouts. Excess supply raises the frequency, straining generators and transformers, which can overheat or fail, potentially causing system-wide outages. So when you get a blizzard or a heat wave, the utility anticipates that demand will spike and wants to respond accordingly. However, if they build a giant power plant to handle the big days they’ll likely end up with an inefficient system (it’s like driving a pickup truck to your office job everyday when you tow a trailer twice a year (like my neighbor Randy)). So utilities build to a base load and then add in supplemental power sources like natural gas peaker plants.
These are highly dynamic power plants which mostly sit dormant, but can be ready to spring into action whenever needed (see the helpful graph below from Enel North America). The need for these peaker plants continues to rise as we move towards a renewable energy future. After all, solar and wind can be intermittent, electric vehicles will induce increased demand and climate change has made our weather more extreme and less predictable. Not to mention increased demand by AI Data Centers. These peaker plants fill a gap, but they deliver that necessary power boost at a significant price premium (typically costs per MW are 2x to 3x higher). Additionally, many of the older peaker plants are 50 or more years old, lack modern pollution controls, and run on dirty fuels like kerosene or oil at least part of the time. What if instead we could use community power generation, storage, artificial intelligence and the internet to handle these peaks? This is at the heart of Virtual Power Plants (VPPs).
The central concept behind VPPs is to use advanced technology to intelligently balance the grid as we transition from fossil fuels to an electrified world. For example, if you’ve installed solar panels on your roof, they’re likely connected to the power grid to save you money by feeding excess energy back into the system. Your solar setup is likely linked to the internet, enabling you to monitor performance and make adjustments. Ideally, your home would also include a battery storage system to store energy for use when the sun isn’t shining. With VPPs, this setup allows your utility to draw from your battery during periods of high demand, complementing the energy your solar panels generate. Electric vehicles, with their large battery packs, can also serve as additional power sources, further enhancing the flexibility and resilience of the grid.
Has Anyone Tried This Yet?
Vermont’s Green Mountain Power has been a pioneer here with their Powerwall and Bring Your Own Device (BYOD) program. They incentivize their residential customers to get solar and Tesla Powerwalls (e.g. giant batteries) to balance their load. This not only reduced their capital expenditures on new power plants, but also makes the grid more resilient as Vermont continues to see more extreme weather. This should hold appeal for crunchy hippies, right-wing doomsday prepper nutjobs and everyone in between. Vermont isn’t just for lovers, it’s for power engineers!
This is pretty amazing, but what if you don’t, or can’t, have solar? This is where Renew Home and NRG are experimenting with something really cool. They plan to enroll approximately 600,000 homes in Texas to build a 1-Gigawatt Virtual Power Plant (VPP) by 2035, relying solely on smart thermostats. The idea here is to shift the power load in a way that complements the grid. So rather than everyone turning on their AC when they get home from work. Renew Home could pre-cool your home earlier to take advantage of a dip in demand which it had identified using advanced analytics and power monitoring. You still get to Netflix and chill, but now the power company has smoothed out their demand and avoided the peaker plant. When demand really spikes, the utility may also adjust your thermostat, but again the idea is that if they can adjust 600,000 homes by 1-degree that really adds up and you won’t notice. This system produces enough power capacity during peak demand to supply 200,000 homes!
In addition to improving grid resilience, VPPs offer significant utility capital savings. While specific savings vary by utility and region, a study by the Brattle Group found that VPPs reduce costs by 60% compared to the net cost of a gas peaker plant and 40% compared to a battery plant. Ben Brown, CEO of Renew Home, claims their VPPs will only cost a tenth of what a new natural gas peaker plant would cost! So that all sounds pretty good, what are the downsides?
There Must Be Some Drawbacks Though?
The biggest issue is buy-in. From the consumer’s perspective, they are giving up some amount of control to the utility. At the very least this could mean your house is a couple of degrees warmer or cooler than you’d like. At a maximum it could mean your backup battery is drained right when you need it most (e.g. during a blackout). Typically, utilities will offer rate discounts as an incentive to join these programs (also clearly defined terms of service would go a long way towards making people feel confident in participation as well).
From the utility’s perspective, VPPs are still a new tech, and while much cheaper than a new gas power plant, there is still a non-zero capital cost (e.g. thermostats, battery subsidies, installers, etc) and they may need convincing. Still the cost savings is pretty compelling and when utilities start to see the added grid resilience afforded by these systems it makes for an easier sell.
Beyond these issues, there are always the technical challenges involved with getting several different systems to talk to each other (e.g. your solar system works with your battery system which works with your smart thermostat system which works with your grid’s power management systems). This is to say nothing of the temptation for tech companies to start serving you ads from your thermostat. Finally there is a real security concern with these systems. Anytime you’re opening up systems control via the internet you need to guard against bad actors hacking the system. Yet, I don’t see any of these downsides as insurmountable or deal breakers.
Virtual Power Plants Are Virtuous
Hopefully, you’re starting to see that VPPs create a virtuous cycle: utilities and consumers save money, the grid becomes more resilient, electrification is encouraged, and investment in clean energy infrastructure grows—all reinforcing each other. This approach leverages existing technology in a smart, scalable way to drive meaningful change. While challenges like consumer buy-in, technical integration, and security risks remain, the potential benefits of VPPs far outweigh these hurdles. By tapping into the collective power of distributed energy resources, VPPs can play a crucial role in building a cleaner, more sustainable energy future.