By Jeff St. John
Rooftop solar, backup batteries, electric vehicles, and smart thermostats and appliances are all crucial to the energy transition in their own right. But if utilities are able to combine these distributed energy technologies together to form so-called virtual power plants, the result could be greater than the sum of its parts — and make the energy transition tens of billions of dollars cheaper.
To do that, however, state legislatures and utility regulators need to put the policies in place to let VPPs thrive. A group of solar advocates and companies have spelled out exactly what those policies should be in recently drafted model utility rules and model legislation that they hope will be widely adopted.
Solar United Neighbors, a nonprofit that has helped organize more than 30,000 households to secure lower-cost rooftop solar, worked with clean energy boutique law firm Keyes & Fox and industry partners including leading solar-battery installers Sunrun and Sunnova to craft the model tariff and legislation.
The goal is to bring a standardized approach to what’s now a fractured state-by-state landscape for VPPs — also referred to as distributed power plants.
“We’re faced with this gap right now between the enormous potential of DPPs, and the actual deployment on the ground,” said Glen Brand, Solar United Neighbors’ vice president of policy and advocacy. Brand and his co-authors plan to work with state lawmakers to convince them to introduce the model tariff and legislation in 2025 in four states, all of which have ambitious clean energy mandates: Illinois, Minnesota, New Mexico, and Virginia.
“It’s widely acknowledged now that the potential to capture more value for the grid from DPPs is overwhelmingly impressive,” he said.
The U.S. Department of Energy estimates that hundreds of billions of dollars of consumer spending on EVs, rooftop solar, batteries, smart thermostats, and water heaters will create the potential for 80 to 160 gigawatts of VPP capacity across the country by 2030. That would be enough to meet 10 to 20 percent of U.S. peak grid needs and save utility customers roughly $10 billion in annual costs.
“If we can dispatch these distributed power plants, and we don’t have to build the transmission system or new power generation, the savings are high,” Brand said.
But beyond its oversight of interstate wholesale power markets, the federal government doesn’t make the rules for distributed energy resources. Instead, those rules are largely set by utility regulators and utilities working on their own or under state legislative mandate.
And today, the programs and payment structures that could allow VPPs to play a larger role are lagging behind their potential, Brand said.
Meanwhile, demand for electricity is set to soar over the coming years, making the need for more capacity greater than ever. If distributed power plants can’t expand to help utilities meet rising demand, utilities will build expensive power plants and grid infrastructure instead— and the value that DPPs could provide in reducing those costs will be lost.
Jamie Charles, the manager of grid services policy at Sunnova who helped design the model legislation, agreed that a standard approach could boost the market for VPPs.
Sunnova operates VPPs in multiple states and has won a $3 billion loan guarantee from DOE’s Loan Programs Office to add more across the country. But the varied approaches state-to-state means a national expansion “becomes an incredibly lengthy and costly process,” he said.
What’s more, most U.S. utilities have strong incentives to prioritize investing in large-scale infrastructure, which earns them guaranteed rates of profit, rather than distributed alternatives like VPPs.
In other words, he said, VPPs “challenge the traditional utility model. Legislation becomes important for pushing through those challenges.”
Why many VPP programs fall short
The concept of paying utility customers to alter when they generate or use electricity isn’t new. In fact, load flexibility and demand response programs are already providing tens of gigawatts to U.S. power grids.
But as more homes and businesses take advantage of falling prices for rooftop solar and backup batteries, and as EVs and electric heating grow from a marginal to a significant draw on the electricity system, these resources are poised to become an increasingly important part of how utilities operate.
Nearly half of U.S. states have launched at least one VPP program, with California, Massachusetts, New York, and Texas leading the pack, according to data from analysis firm Wood Mackenzie. But to date, with a few exceptions, many of those state-by-state efforts are struggling to mature beyond initial experiments.
That perspective was shared by Mark Duda, a Solar United Neighbors board member and long-time solar developer and contractor in Hawaii, during an August webinar introducing the model tariff and legislation. He cited the example of Hawaii, which has arguably done more work on integrating distributed energy resources into its islands’ grids than any other state.
Unfortunately, he said, a successful VPP program launched by utility Hawaii Electric in 2022 has since been altered by state regulators in ways that increase complexity and reduce compensation for participating solar- and battery-equipped households.
Duda chalked up that outcome to a “typical combination of delay, personnel turnover, general lack of understanding of the technology involved, and insufficient interest from key stakeholders.” Given the number of Hawaiians installing batteries with solar at their homes, that’s “an enormous missed opportunity.”
Similar challenges have emerged in California, which leads the country in rooftop solar, home batteries, and EVs. After a decade of state policy calling on regulators and utilities to enlist customer-owned DERs in programs that reduce peak energy demand and mitigate costs, companies working in the state’s VPP landscape say California’s patchwork of programs have changed too often — and faced too many unexpected budget cuts or compensation clawbacks — to effectively align customer and grid needs.
Other states have done a better job, according to Amy Heart, senior vice president of public policy at Sunrun, which is operating VPPs in California, Hawaii, Massachusetts, and Puerto Rico.
Vermont utility Green Mountain Power was one of the first in the U.S. to promote solar-charged batteries as grid resources at large scale, and has been expanding its programs for smart thermostats, EV chargers, and remote-controllable water heaters as well, she noted.
And ConnectedSolutions, a program run by utilities National Grid and Eversource in Massachusetts and other New England states that has delivered hundreds of megawatts during summer heatwaves, is “top of the list, best in class,” she said.
What makes VPP programs work well?
Many of the features that advocates say have made ConnectedSolutions successful have been incorporated into the DPP model tariff — the regulations that set the terms and conditions of utilities’ services to their customers. Those include four key principles for VPP programs to observe: They should be open access and technology agnostic, have flexible participation, and ensure fair export compensation.
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