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With utility bills rising fast, an increasing number of states are looking to virtual power plants as a potential solution.
As of last year, 34 states have programs that call on utilities to use smart thermostats and water heaters, batteries and EV chargers, and energy management systems at businesses and factories to combat rising electricity rates.
A dozen states are considering legislation this year that could launch or expand VPPs, including Michigan, Minnesota, New Jersey, and Pennsylvania. Similar bills passed in Illinois and Virginia in 2025 and in Maryland and Colorado in 2024.
The thesis behind these policy pushes is straightforward. Utilities can’t build new power plants or expand and upgrade their grids quickly enough to meet fast-growing electricity demand. Building out that infrastructure is one of the biggest drivers of rising utility rates, though not the only one.
Paying customers to lower their power use or share electrons they’re generating or storing could be a faster and cheaper solution. That approach could reduce the need to build and run expensive peaker power plants — or help avoid or defer costly grid upgrades to serve those peaks — and curb rate increases for all customers, not just those being reimbursed to supply it.
“People think about their neighbor who put solar on their roof to save on their own electricity bills,” said Mary Rafferty, executive director of Common Charge, a coalition that promotes VPPs. “But if we can collectively aggregate all the sources of power from homes and businesses, everybody gets the benefits of building out a more affordable grid.”
And they’re already working. Collections of these customer-based resources currently provide hundreds of megawatts of capacity in California, Texas, New England, and Puerto Rico, matching the scale of large power plants, if not the full spectrum of roles they provide.
The trick is establishing programs that can deliver those widespread benefits in a way that makes utilities and regulators comfortable.
Right now, most of the country’s VPP capacity is concentrated in old-school “demand response” programs that pay big power users to reduce their electricity use during grid emergencies. This tried-and-true approach has seen success, but it also faces limits in combating the broader cost pressures driving up utility bills.
There is far more potential in tapping the distributed energy resources, or DERs, that people are buying anyway. The U.S. Department of Energy has calculated that the country could achieve 80 to 160 gigawatts of VPP capacity by 2030, roughly three to five times what’s out there today, from these “demand side” resources. That could save utility customers about $10 billion in annual grid costs.
Jigar Shah, the longtime clean-energy entrepreneur who led the Biden-era DOE office that produced that analysis, has since made VPPs a focus of his advocacy work at groups like Deploy Action and the VPP Convergence Project, and in his relentless podcasting and social media messaging. In Shah’s telling, the argument for more VPPs can be summed up in a basic equation: the volume of electricity sales across utility grids divided by the cost of keeping that grid going.
Simply put, utilities must recover enough money from customers to pay off the costs of delivering power. That means “utility rates are determined by how much investments [utilities] make, which is the numerator, and how many kilowatt-hours they sell, which is the denominator,” he told Canary Media. “You want the numerator to be smaller, and you want the denominator to be bigger.”
Virtual power plants can rebalance that equation in customers’ favor, by bringing new energy users online at lower cost than what utilities would otherwise spend. “If you can reduce the numerator some — you can’t get rid of all of it — and you can increase the denominator by bringing load online faster, you lower rates.”
Along with the high cost of building new power plants and expanding and maintaining poles, wires, transformers, and substations, utilities face additional costs and bottlenecks in getting additional sources of electricity online. Gas turbine manufacturers are backlogged through the end of this decade, and the cost of gas power plants has grown significantly over the past few years. Meanwhile, solar and wind are constrained by both a too-small transmission grid and Trump administration policies.
In short: It’s hard for utilities to get the power they want right now at any cost, and VPPs can help.
In fact, the need to connect more customers to the grid is the most immediate pressure driving utilities to revisit VPPs, Shah said.
The artificial intelligence boom has put the limitations of the existing grid into sharp focus. Prospective data centers are being told there’s not enough gigawatts to serve them, even as the cost of expanding future capacity to meet their demands is pushing up rates in data center hot spots. But the fundamental issues are not new. The same constraints have made it hard for EV charging depots and other power-hungry customers to get connected in other parts of the country, he noted.
“Utilities are responsible for economic development in their regions. And they’ve been failing to support economic development, because interconnection timelines have been a lot longer than they want them to be,” Shah said.
Utilities have long been uneasy about relying on customer devices they don’t directly control. The biggest VPPs in the country remain tied to providing emergency grid relief, rather than being included in long-term plans that would allow them to serve as an alternative to building new power plants or updating the grid. Most of the regulatory and legislative directives pushing utilities to use VPPs are taking an incremental approach — launching pilot projects, testing their capabilities, and then scaling up over time.
But as Shah pointed out, utilities have had more than a decade of experience with DERs to build on. “All that piloting we’ve done since 2012 is ready for prime time.”
Residential VPP capacity tends to start with smart thermostats and controllable air conditioning and electric heating that can be modulated to reduce peak-power stresses. This may leave people feeling hotter or colder than they’d like. But energy-efficiency improvements and smart precooling or preheating strategies can minimize those impacts — and appropriate payments can make the discomfort worth it. Meanwhile, some appliances, like water heaters, can be turned off without people noticing, as long as they’re not turned off for too long.
Solar systems, batteries, and EVs bring something more to the table: the potential to generate and store power that can go back to the grid. Solar-battery VPPs from companies like Tesla and Sunrun, or “bring-your-own battery” programs managed by utilities, are providing big boosts to grids in Puerto Rico and states including California and Vermont. And “managed charging” programs for EVs are a key tool for utilities to turn a potential grid stress into a grid asset — or even to tap EV batteries in “vehicle-to-grid” programs.
Traditionally, utilities have managed these technologies separately and slowly scaled them up. It’s also important to remember that investor-owned utilities earn guaranteed profits for investments in power plants and grids, which disincentivizes them from pushing hard on alternatives that might erode those profits — including VPPs.
But with energy affordability now driving big political pushback in Virginia, New Jersey, and other states, VPP advocates argue that it’s time to move fast — and that state lawmakers can set the terms for making that happen.
“We’re looking at legislation as an opportunity to ensure that the virtual power plants are robust,” said Chloe Holden, a senior principal at Advanced Energy United, a clean energy trade group. “For us, that means they have multiple DER types, they leverage traditional demand response, they often have goals attached to them in terms of scale and timelines that we think are achievable but ambitious — and that they are set up to compensate DERs for a number of different grid services, and that those grid services expand over time.”
To be clear, utility cost pressures have been building for decades, and VPPs won’t offer immediate — or complete — relief, she said. But the traditional approach of adding more poles, wires, and power plants is what’s causing costs to rise in the first place.
“This is really the first opportunity that legislators and utility regulators have had to make us build in a more affordable way,” she said. “It used to be true that all utility infrastructure was seen as necessary to control peak load, and that peak load was something we didn’t have any control over. That’s no longer the case.”
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