Virtual power plants play a crucial role in advancing America's shift to clean energy

The Rise of Virtual Power Plants in the U.S.

Virtual Power Plants (VPPs) are gaining momentum throughout the United States. These systems harness the collective output of numerous small-scale renewable energy sources, such as residential solar panels and wind turbines. The adoption of solar technology and home battery storage has surged in recent years, driven by the desire to reduce utility costs and transition to cleaner energy solutions.

How Virtual Power Plants Work

VPPs function by linking together a network of distributed energy resources—like solar panels, batteries, and other small generators—to supply electricity to the grid. Increasingly, utility companies are collaborating with local renewable energy providers to establish VPPs, offering a cleaner alternative to fossil fuels during periods of high electricity demand. With homeowners’ approval, utilities can tap into these decentralized energy systems when needed or store excess power for future use.

Policy Support and Growth

Although still in the early stages, VPPs are gradually being adopted across the country. Their expansion has accelerated since the passage of the 2022 Inflation Reduction Act (IRA) under President Joe Biden, which provided incentives for renewable energy projects and electric vehicle adoption. This legislation has helped diversify the nation’s energy portfolio at a faster rate.

Jigar Shah, director of the Loan Programs Office at the U.S. Department of Energy, remarked, “We can use our existing assets more efficiently as opposed to raising rates for all electricity users by doing things less efficiently. Virtual power plants are at the centre of that.”

Challenges Facing the Power Grid

Exploring new energy solutions is especially critical as utilities nationwide grapple with limited resources to expand and modernize the grid. Building traditional power plants and maintaining infrastructure like transformers and substations is expensive. At the same time, manufacturers of gas turbines are facing production delays through 2030, and the cost of constructing gas-fired plants has risen sharply.

Additionally, there is a significant delay in connecting new wind and solar installations to the grid. The rapid expansion of data centers—essential for powering artificial intelligence—has further highlighted the grid’s limitations.

Potential Impact of VPPs

According to the nonprofit RMI, VPPs could reduce peak electricity demand in the U.S. by 60 gigawatts by 2030. This would be achieved by shifting energy use to off-peak hours and replacing centralized power generation, equating to the consumption of approximately 50 million households.

VPP Adoption and State Initiatives

Some American solar companies have already integrated VPPs into their operations. Firms like Sunrun Inc and SunPower Corp have aggregated customer systems into VPPs in states such as California, Hawaii, and New England.

By 2025, 34 states had launched programs encouraging utilities to utilize smart thermostats, water heaters, batteries, EV chargers, and energy management systems in both commercial and industrial settings to address rising energy costs. This year, VPPs are expected to expand rapidly, with 12 states—including Michigan, Minnesota, New Jersey, and Pennsylvania—considering legislation to support their growth.

Case Study: New Orleans

New Orleans is prioritizing VPP development, with the city council directing Entergy New Orleans to create a $28 million battery incentive program for homes, businesses, and nonprofits. This initiative, funded by a settlement over a nuclear plant issue, aims to help the city—situated below sea level and vulnerable to hurricanes—improve its resilience. The program is expected to launch later this year, potentially supporting battery installations in 1,500 homes and 150 community organizations, providing backup power or feeding electricity into the grid during peak demand.

Setbacks and Policy Changes

In Boulder, Colorado, a VPP initiative designed to enhance the city’s energy efficiency and reliability was halted after a federal grant was rescinded. The Department of Energy had allocated $12.7 million to support the Xcel Energy project in 2024, aiming for net-zero emissions by 2035. However, the grant was reportedly withdrawn in October 2025 as part of the Trump administration’s rollback of renewable energy funding.

Boulder was chosen for the VPP pilot due to its concentration of federal research facilities. “Xcel hasn’t made a commitment, one way or the other, but losing $12.7 million certainly reduces their ability to move forward with it at this point in time,” explained Carolyn Elam, the city’s senior sustainability manager.

The Future of Virtual Power Plants

VPPs are poised to become a cornerstone of America’s clean and reliable energy future. By leveraging these networks, the country could ease pressure on the aging grid and reduce dependence on fossil fuels. However, shifts in federal policy—such as those under President Trump—may slow the pace of VPP deployment.

By Felicity Bradstock for Oilprice.com