Several successful initiatives demonstrate that grids in North America can harness power from distributed resources like solar panels and electric vehicles using the proven technology of virtual power plants (VPPs). But experts say deployment is stalled by a system designed for centralized power generation.

Traditional power plants rely on generating large amounts of power at a single, central location and distributing it out to consumers. By contrast, VPPs use software to coordinate electricity use, storage, and distribution throughout a network of energy devices like EVs, smart thermostats and HVAC systems, and residential solar and battery storage installations. In this way, their proponents say, VPPs can make energy grids more flexible and reliable without having to build new infrastructure.

When it comes to running VPPs, “there are no technological barriers, no technical barriers—and also no business or program model barriers,” Chris Rauscher, head of grid services and VPPs at Sunrun, told podcast host John Farrell of Local Energy Rules. The only barrier is putting the technology and business models in place when policies and markets aren’t ready for them.

Given that future electricity demand is “an enormous problem that is getting bigger,” said Cisco DeVries, vice president of RenewHome, and given a choice between building more fossil fuel plants, batteries, or VPPs, “VPPs are almost without any question the cheapest, fastest, and cleanest [solution] for the United States grid to remain stable.”

This past winter, VPPs took a big step forward in Canada when Ontario’s Independent Electricity System Operator signed up more than 100,000 households in six months for its Save on Energy Peak Perks program. The program became Canada’s biggest VPP, and North America’s fastest-growing one.

Several initiatives in the U.S. also show the technology taking root. National Grid has an established ConnectedSolutions program in New England, which utilities used to cut 375 megawatts from peak energy demand during heatwaves—an energy saving roughly equivalent to adding a medium-sized gas power plant to the grid. Ratepayers with devices connected to the program were compensated, with smart thermostat users receiving US$20 and battery storage owners being reimbursed proportionate to the stored energy used, writes WBUR.

Recently, utility Xcel Energy told Minnesota state regulators it wants to use VPPs in its grid. This follows new Colorado legislation last May that requires Xcel to create a VPP plan for that state by February.

“It’s a solution some clean energy advocates have long pushed for as an alternative to larger, centrally located projects that are more reliant on long-distance transmission and create fewer local economic benefits,” reports Canary Media.

“Xcel’s new embrace of the concept likely reflects the evolving economics of clean energy and the urgency to replace generation from retiring coal-fired power plants.”

Proponents say these initiatives show VPP technology is ready for wider use. But challenges remain.

There are political tensions at play, with utilities resisting VPPs when they see them as a threat to their business models and have little incentives to accommodate the switch. Michael Murray, president of the Mission:data coalition, told the Financial Times that, “for the most part, utilities are dinosaurs, and they take a long time to move in a new direction.”

Efforts to create some policy direction have so far come up short in providing a pathway for more VPPs. In September, 2020, the U.S. Federal Energy Regulatory Commission issued Order Number 2222, which was meant to enable distributed energy producers to participate in energy markets. But restrictive regulations and regional variations have made the order difficult to implement, found a 2023 report from advisory and consulting firm Guidehouse Insights. Rauscher also said the markets and regulations that could provide a framework for VPPs are under-developed because U.S. energy systems are still built on a traditional model of centralized energy monopolies.

“So what that means is that the rules just simply do not exist, and the markets don’t exist for virtual power plants to participate, unless we go out there and create them,” he said.