We still can’t agree on how to scale VPPs

There’s general consensus in the power industry that virtual power plants have a lot of potential to provide distribution and resiliency benefits to the grid. But that’s pretty much where the common ground ends. 

When it comes to foundational questions about how VPPs should operate — such as who should administer and manage programs, what services VPPs should provide, and how customers should be compensated — the market is riddled with approaches that seem to pull in opposite directions.

Many stakeholders agree on the ultimate, long-term vision for VPPs: one in which all kinds of devices can be controlled with one signal, and demand can be modified with the same nimbleness as supply. However, the lack of a clear path is holding the market back in its early days.

“Right now the VPP space could be best characterized as a market with far more questions than answers,” said Latitude Intelligence managing director Matt Casey. To date, VPPs have proven to be very effective in a few specific use cases, he added — notably summer peak shaving in places like ERCOT and California — but those select cases aren’t reflective of the current state of the market.

“Unfortunately, these open questions are around very fundamental elements of VPPs, that without answers to, will inhibit the ability to actually deploy at scale,” he said.

The utility integration vision

Jigar Shah, head of the Department of Energy’s Loan Programs Office, has long been bullish on VPPs. In an op-ed written for Latitude Media last year, Shah described VPPs as “the fastest, least-cost path to a higher capacity, more efficient, and cleaner grid.”

And in September, he told Latitude Media that “we have all the tools, and we’ve been piloting them for twenty-plus years. It’s time to scale it up.” In Shah’s view, that scale will require integration with utilities. 

DOE has always been “crystal clear” that utilities need to be able to “modify demand with the same level of dexterity that they currently modify supply,” Shah said.

“That explicitly means that the virtual power plant has to be integrated into their grid operation software,” he added. “For utility companies to believe that this resource is dependable and scalable, and something that will actually meet the resiliency and reliability requirements that they have, there has to be a certain level of control.” 

That said, Shah agrees that scale will require simplicity in the near-term — which means VPPs should likely be an “energy efficiency play” to prevent loads from pulling from the grid during peak times, rather than a two-way asset.

The back-to-basics vision

For residential solar and storage solutions company Sunrun, which has over a million customers to date, VPP programs structured as bilateral contracts with utilities that require software integration haven’t proven their value. 

“In my mind, we’re still at the stage with VPPs where simplicity sells and complexity kills,” said Chris Rauscher, who leads grid services at Sunrun. “We’ve seen the simplest programs be the most successful nationwide,” he added, pointing to the ConnectedSolutions VPP in Massachusetts with National Grid, and the PowerOn Puerto Rico VPP with Luma. 

“All of our programs that are the most successful do not have software integrations,” he said. “They don’t rely on utility metering; they don’t rely on utility software; there’s no baselining.”

In Sunrun’s view, those are the types of programs that the VPP industry should be focused on scaling up around the country: “Everyone thinks there’s some super complex interaction between the utility and the VPP provider, but really, all that complexity lives on our side of the fence,” Rauscher said.

But that approach has certainly run into challenges, including with Sunrun’s permanent load shifting pilot with PG&E in 2023. That program was run entirely in-house on Sunrun’s network operations platform, without software interaction between Sunrun and PG&E, and was metered directly at the battery level.

PG&E, for its part, said it would not be replicating the program in the same way, due to “a lot of technical gremlins in this process that still need to be worked out.” Those “gremlins” included unresponsive batteries, and the fact that PG&E essentially had to guess early on as to the mix of batteries that would opt into the program, and their starting assumption was off-base.

The small device vision

Renew Home, which spun out from Google’s Nest Renew business and OhmConnect earlier this year, currently has three gigawatts of VPP capacity under management across more than 100 utility programs.

According to CEO Ben Brown, one key issue with the VPP landscape today is a “conflation” between VPPs and solar and energy storage. There are simpler approaches that could be scaled quickly and don’t necessarily need VPP revenue streams or subsidization to scale, he added.

“Of course that is something that needs to be innovated on, but it’s talking about a very specific solution, which is we need homes to invest in electrification and DERs, and we need to find financial mechanisms to reduce the burden,” he said. “What I don’t want to happen is for VPPs to be co-opted by that specific lens.”

Renew Home’s approach is to focus on existing assets that homeowners have already invested in “and find smaller, marginal cost ways of activating them in a high-impact way.”

Smart thermostats, Brown said, are “the perfect enchanted object” for that approach. Those devices don’t require “meaningful decision moments” by the consumer, like solar or storage would, he added. These are near-term, quickly actionable ways to activate resources.

That said, this vision rooted in home electrification and DERs requires work to get more homeowners — and regulators — onboard. 

“When you look at it through that very specific lens,” Brown said, “then definitely there’s more work that needs to be done in terms of making sure that there’s a regulatory environment and the right incentive structures.”

Meanwhile, Casey, at Latitude Intelligence, said that while consensus isn’t necessary (“it’s not a one-size-fits-all market”), clarity around the business models is essential to scale. Without that, he added, “we’ll continue to only see select edge cases where VPPs provide value, rather than seeing VPPs become the reliable and scalable resource they’re being touted as.”