Ted Ko is the co-founder and executive director of the Energy Policy Design Institute.
After a period of relatively slow growth, virtual power plants are having a moment. A recent Brattle Group study finds VPPs could save California consumers over a half-billion dollars per year. PJM mostly finalized its VPP rules in late 2023, shortly after the Department of Energy’s “Pathways to Commercial Liftoff” report offered a U.S. roadmap for VPP deployment. Every other week, it seems, there’s news about a successful VPP pilot or financing for a new large VPP project.
While this is very promising, history tells us persistent confusion around VPPs may impede successful policymaking, challenging regulatory commissions, stalling deployments and delaying important benefits to our electricity system.
Making one small but significant change — clearly defining VPPs in policy discussions — can drastically accelerate deployment and help VPPs reach their full potential.
The discourse around VPPs is broken
Virtual power plants are aggregations of distributed energy resources that can function as a single resource to provide certain services associated with traditional power plants. And while it’s a virtue that VPPs can include diverse resources and offer a variety of services, their complexity has often hindered policymaking efforts.
Herman Trabish’s recent article for Utility Dive about VPPs encapsulates the state of play. Trabish identifies three key issues — smarter operations, better planning and strong interoperability standards — whose resolution could materially accelerate VPP deployments.
But if you read closely, you’ll find the interviewees are describing different types of VPPs. When a utility expert claims a need for sophisticated control room technologies, he’s talking specifically about utility-controlled VPPs. When SunRun’s expert calls that claim an excuse, he’s referring to another type of VPP entirely — one that’s aggregated by third parties. (We’ll define these categories shortly.) Without meaning to, the experts are talking past each other and amplifying confusion.
The point here isn’t to quibble over semantics but to make the term “VPP” useful in the policymaking process. That starts by asking two key questions. What kind of VPP do you want? And what do you want it to do for you?
Three Types of VPPs
I see three distinct VPP types and propose the following definitions:
- Level 1 VPP: Utility program where individual DERs respond to utility signals to provide grid services. (Examples: Massachusetts’ Connected Solutions program and California’s Demand Side Grid Support program.)
- Level 2 VPP: DERs are aggregated into a “fleet” that responds as one resource to a utility’s call for grid services. (Example: SunRun VPPs in contracts with PG&E and California Community Choice Aggregators.)
- Level 3 VPP: DERs are aggregated into a “fleet” that operates as one resource in a wholesale market while staying coordinated with the local distribution utility. The fleet and individual DERs may also provide retail market services. (Example: FERC Order 2222 aggregations, when they appear.)
Again, the purpose of defining terms like “virtual power plant” — or “energy storage,” “resilience,” etc. — isn’t to uncover some sort of existential truth about these resources. Nor is it to constrain anyone’s marketing efforts — go ahead and call your VPP offering whatever you want.
Rather, the purpose is to make these terms useful in the policymaking process. In designing new laws and regulations, clear definitions help in two ways. First, they clarify the rules’ applicability to specific resources (“what’s in and what’s out”). Second, they give all stakeholders a common language so policy development can proceed efficiently. (Ever spent weeks in a policy stakeholder workgroup only to discover a key term was being used in problematic, even contradictory ways? And then had to backtrack, undoing many hours of collective work? I sure have.)
Putting definitions to work
Clear terminology, particularly in the state regulatory arena, stands to benefit everyone. If you’re a participant in policy and market development discussions — and especially if you’re a utility commissioner or commission staff — here are three ways VPP definitions can benefit your work.
If you’re in information gathering mode, these definitions can help you interpret and leverage a raft of available resources. To begin with, what kinds of VPPs are being described? DOE’s “Liftoff” report, for example, mainly focuses on Level 1 VPPs. What services are the VPPs providing? How could they benefit your state or wholesale market? Would another VPP type deliver more value, and why?
If you’re soliciting or providing stakeholder feedback, you may wish to align your contribution with the above definitions to the extent possible — especially if you’re affiliated with a public service commission. States typically begin inquiries into new resources by soliciting broad stakeholder feedback, as several PJM states have recently done on VPPs. Unfortunately, wading through a large stack of comments can be overwhelming, and the end result often isn’t very helpful. Being clear about VPP types and desired services up front can channel productive input and lay the groundwork for effective stakeholder collaboration going forward.
If you’re overseeing or participating in policy design, definitions can provide much-needed clarity on specific resources as well as overarching policy goals. What is the desired end state for your electricity market? Too often, discussions focus on the quantity of a new resource being deployed — e.g., 1 GW of VPP capacity — when they should focus instead on desired outcomes — e.g., a stable electricity market where VPPs deliver specific, valuable services without subsidies. Focusing on outcomes allows workgroups to collaboratively identify the overarching design principles that are likely to realize them. In this case, starting with clear definitions for VPPs enables equally productive discussions about market segments, VPP services and appropriate compensation.
With so much riding on state-level policies to spur a successful energy transition, it’s crucial to clearly define clean energy technologies and the services they’re meant to provide. Doing so can drastically accelerate policy development. It can also transform adversarial processes into productive design initiatives that build collaboration and goodwill.
The payoff here isn’t about semantics. It’s about better, more efficient electricity systems; robust, transparent markets where producers and consumers can easily transact; and a future where climate disruption no longer threatens our lives or our livelihoods.
