Defining VPPs’ role in the grid of tomorrow

After two decades of flat or declining load growth, U.S. electricity demand is predicted to rise by almost 5% over the next five years, driven by the proliferation of data centers and electric vehicles, increases in domestic manufacturing, and widespread electrification. This anticipated load growth poses sweeping challenges for the grid, impacting everything from resource adequacy to transmission and distribution infrastructure planning.

Until recently, utilities lacked a multipurpose solution for these diverse grid challenges. Instead, they’ve relied exclusively on costly, time-intensive new generation capacity to offset growing demand. 

“This is where virtual power plants stand out,” says Paul Hines, vice president of power systems at EnergyHub. “They can be deployed quickly to meet load growth needs while simultaneously addressing challenges like distribution grid congestion and rising wholesale energy costs.” 

This versatility is one of the technology’s biggest strengths — and a perennial source of confusion. Ask a demand management team, a grid planning team, and a utility commission to define a VPP and you’ll likely get three different answers. But to address rapid load growth and meet the flexibility demands of the future, we need to stop trying to define VPPs as a monolith and embrace their broad potential use cases across the utility.

Understanding VPPs: Where are we getting it wrong?

Most would agree that VPPs are aggregations of distributed energy resources that provide services to the grid. So where do misconceptions arise? 

“The word ‘virtual’ causes pushback,” said Hines. “Compared to a physical generation asset, aggregated customer-owned DERs can seem less reliable to grid operators and regulators.” 

The term "power plant" both under- and over-sells VPP capabilities, he continued: “Because most VPPs don’t export power, they are often either ignored, or heavily discounted, in utility's long-term integrated resource plans. But we have proof that they’re already delivering grid value at a meaningful scale across North America.” 

According to market analysts, there are currently over 500 VPP projects in North America. Within these projects, you’ll find everything from thermostat-based VPPs like Arizona Public Service’s Cool Rewards program, which leverages over 90,000 DERs to keep power supply reliable in the face of extreme heat, to the multi-state ConnectedSolutions VPP program, which dynamically dispatches over 200 megawatts of batteries, thermostats, and EVs to support a range of bulk and distribution grid needs. 

RMI’s recent Virtual Power Plant flipbook further highlights the variety of VPP applications, showcasing over a dozen U.S. programs of varying sizes and configurations delivering multiple advanced grid services.

“What do all of these programs have in common?” asked Hines. “They harness the wide-ranging capabilities of VPPs to solve the utility’s unique challenges.”.

The bottom line: VPPs deliver more value across the utility

Instead of merely toggling “on” or “off” to balance the grid sporadically throughout the year, VPPs can be dispatched year-round to support new program objectives like daily load shaping, greater integration of renewable resources, and customer time-of-use rate optimization. At the distribution level, VPPs enable localized dispatch of DERs connected to specific assets, helping grid operators prevent overload and delay or avoid infrastructure upgrades. 

For markets and trading teams, VPPs can be monetized and bid into regional markets to optimize wholesale energy prices.

Whereas traditional generation can take years to build and even longer to interconnect, VPPs can be launched and scaled quickly at 40-60% lower cost. For instance, the Ontario IESO expanded its Peak Perks VPP program to over 130 MW of peak demand reduction in less than a year thanks to strategic collaboration between the electricity provider, device partners, and EnergyHub.

“VPPs aren’t perfect, but they’re absolutely necessary to meet load growth needs,” said Hines. “We’re still in the early stages of proving VPPs’ value beyond peak load reduction. A key part of getting buy-in across the utility will be improving the reliability and telemetry of the technology to surpass that of conventional generation. We’re working hard to make that a reality here at EnergyHub.”

This is partner content, brought to you by EnergyHub.