The idea that virtual power plants (VPPs) need to be a cornerstone of any effort to decarbonize the U.S. grid is gaining momentum. “This must occur – there must be solar plus batteries [at the local level]. It’s the only way,” Elon Musk said during Tesla’s Q1 earnings call in late April.

Musk’s remarks have amplified a story that the rooftop, and more recently, community solar industries have been telling for years: planning a grid around aggregated distributed renewable energy resources builds flexibility and resilience on the demand side while lowering emissions and reducing costs.

A VPP is a network of DERs that can operate as a single power plant and be coordinated using a cloud-based control system. “VPPs help prevent overbuilding the system to address peak power demands,” Jeff Cramer, Executive Director at the Coalition for Community Solar Access (CCSA) said. Rooftop solar, community solar and storage on the distribution system, combined with demand response applications and clear market signals that can coordinate distributed energy resources (DERs), is how the VPP concept comes to life, he added.

Community solar can accelerate the transition to VPPs because, by design, community solar assets aggregate customers, and, as such, these assets are an immediately scalable distributed generation resource. The fact that over half of U.S. rooftops are not suitable for supporting solar underscores why community solar must be an integral part of any VPP discussion, Cramer said.

Generally, driving more distributed assets onto the grid is the first step, and turning them into VPPs is the second. “If we don’t have more DERs on the grid, the VPP model won’t extend much further,” Zaid Ashai, the CEO of Nexamp said. In large part, the VPP concept is gaining momentum now because of the groundswell of support for decarbonization efforts and because DER penetration has reached a critical threshold in several regions.

Based on community and rooftop solar penetration, certain states, including New York, New Jersey, Maryland,  Massachusetts and California, are currently ripe for VPP opportunities, and as states move forward with electrification goals, the need for new energy capacity is growing.

“Places that are susceptible to weather-related outages like Hawaii and along our coasts have urgent needs for VPPs, but eventually every community in this country should be able to opt for distributed assets that are cleaner, more affordable, and more reliable,” Lauren Randall, director of policy and market development at Sunrun said.

To meet President Biden’s goal to create a carbon pollution-free power sector by 2035 and use it as an opportunity to improve equity, VPPs have added appeal. Historically, natural gas-fired “peaker” plants used to meet peak power demand have been located in disadvantaged communities.

In May, New York Senator Kirsten Gillibrand and Representative Yvette Clarke (D-NY) introduced the Promoting Energy Alternatives is Key to Emission Reductions (PEAKER) Act. If passed, this Act would establish a new 10% additional investment tax credit (ITC) for battery storage and renewable electricity that can displace electricity generated by dirty peaker plants operating in disadvantaged communities.

A sum greater than its parts

According to Cramer, comparing the costs of distributed solar systems versus utility-scale systems requires considering the cost impacts of one resource over another at the system level. “Choosing a higher per unit cost generation resource might be the lowest cost choice overall due to its ability to save costs elsewhere – including avoided distribution, transmission, and bulk power system costs New advanced modeling is showing exactly this, with “savings of over $400 billion by 2050 if the U.S. gets smart about deploying VPPs”,” he added.

Against this backdrop, the modeling component becomes more important. “It all comes down to improving the asset utilization of the grid,” Karl Rábago, principal at Rábago Energy said.

One of the best ways to make our energy system more resilient and reliable is to generate power closer to where it is used, Randall said. In a VPP, people who actually use the energy are at the center of the system, she added.

According to a recent Vibrant Clean Energy report, developing nearly 250 GW of local rooftop and community solar and 160 GW of local energy storage is the most cost-effective way for the U.S. to transition to a clean energy system by 2050. There are currently about 3 gigawatts (GW) of community solar currently deployed across the country, , and 30 GW of rooftop solar.

“[Think about] what would happen if you then gave these [local solar] systems the ability to aggregate and scale and be managed. When you do that, you start to see [VPPs] collective potential… The sum becomes greater than its individualized parts,” Cramer said.

Wanted: a VPP policy roadmap

The technological tools to support DERs and demand response already exist.  “It’s not an issue of technology; it’s an issue of policy,” Nexamp’s Ashai pointed out.

The policy changes to facilitate broader VPP deployment will come more quickly thanks to FERC Order 2222, which debuted last September.

Order 2222 set out to remove the barriers that prevented DERs, like rooftop solar and storage, from participating alongside traditional resources in the regional organized wholesale energy markets, but fair market rules for DERs are still needed.

“I’m still reading [integrated resource plans] that say, if it’s not under our control, we can’t treat it as a resource,” Rábago said. Until fair market rules arrive, DERs can’t participate in the market in the same manner as other large resources, and the VPP model won’t work.

For the VPP model to thrive, grid modernization is needed too. This is because VPP systems won’t function as well on the U.S.’s current antiquated grid. Investments in grid technology, particularly technology that allows the grid to function bi-directionally and intelligently with heterogeneous energy assets, are vital, Ashai said.

For their part, most vehicle manufacturers are clearly aware of the opportunity that VPPs represent, as evidenced by the rollout of bi-directionally supported EVs, like Ford’s F-150 Lightning electric truck, which debuted in mid-May. In a VPP-based system, a bi-directional EV battery becomes a DER that can help stabilize the grid during peak power events or provide power after hurricanes, or other natural disasters, or during public safety power shutoffs.

The technology is here but “we [still] need to fully value solar plus storage’s contribution to the grid,” Sunrun’s Randall said. “We need policies that promote local, affordable, decentralized options. This includes maintaining foundational billing mechanisms like solar net metering, which sits at the heart of electrification, and giving schools, non-profits, and homes the opportunity to provide the full value of their battery storage systems to the grid,” Randall said.

To this aim, in California, legislation that will require the California Public Utilities Commission to establish a capacity value for behind the meter storage has been introduced.

Storage needs to be compensated because solar and wind are intermittent resources. “[Compensation for storage is] critical when you are trying to create a system where renewable energy technology can behave like baseload power,” Ashai said. This is an achievable goal, but policy needs to catch up and account for the inherent differences of a VPP system, he added.

Several bills that could help advance the VPP model might make it into the federal infrastructure package. These include bills that expand the ITC for solar and create ITCs for storage technology and transmission, as well as a bill that sets out to incentivize domestic manufacturing of advanced energy technologies and a bill to create a Clean Energy and Sustainability Accelerator that can use public funds to mobilize the private investment that will be needed to accelerate the deployment of clean and resilient infrastructure.

“Within the next five to 10 years, we are definitely going to see wide adoption of distributed generation and scaling VPPs driven by local solar and storage,” CCSA’s Cramer said.

At Sunrun, VPPs currently cover about 10% of its geographies, and the company hopes to expand this to about 50% by the end of this year, Randall said.

Of course, this growth is in part dependent on state and federal policy mechanisms to ensure distributed energy resources can be built and the potential of VPPs can be fully realized. According to Cramer, this is where there’s a gap between the potential for VPPs and what is connected to the grid right now.