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What is a virtual power plant?

Published at 30 Aug 2022
Virtual Power Plants
What is a virtual power plant?

So what is a virtual power plant?

What’s the difference between a VPP and microgrid?

How do VPPs and Demand Response work together?

How do virtual power plants generate money?

Companies in the U.S. Employing VPPs

VPPs Aren’t New

It's probably not something you think about, but at any given moment demand for electricity is different. For example, electricity usage is generally highest in the U.S. during summer months when air conditioners are being used in homes and businesses, and in the winter we see demand peak in the mornings when people are getting ready for the day and evenings when they return home. Utility companies have implemented a few different strategies to meet this demand, including building additional power plants to generate more energy and offering incentives to customers to use less electricity.

But one lesser known initiative is increasing in popularity, both for its eco-friendly and wallet-friendly benefits, and those are virtual power plants (VPPs).

So what is a virtual power plant?

A virtual power plant, or VPP, is a network of medium-scale distributed energy resources (DER) - like smart thermostats, air conditioners and backup batteries - that are used to provide energy to and stabilize the grid. The goal of a VPP is to lower the electricity demand by cutting back on energy consumption, or address the demand by pulling additional power from home batteries to create more electricity. The key to a VPP is that it's made up of decentralized units and transmitted by using software and other digital communication networks to efficiently distribute power to the grid during times of peak demand.

In practice, a virtual power plant can operate something like this:

Scenario 1:

A utility company works with a third party to give them access to their customers’ electric vehicle (EV) chargers. The utility's customers allow the third party to regulate their charging port to charge their EV overnight when demand is low. In return, the customer receives a cash incentive for using less energy and lowering peak demand.

Scenario 2:

A utility company is granted permission to access their customers' home batteries when demand is high. Upon doing so, they can then feed the electricity pulled from the battery back to the grid, increasing energy supply during high demand.

What's the difference between a VPP and microgrid?

While microgrids are made up of similar components like clean energy resources, demand flexibility and fossil-fuel plants, there are some key differences between microgrids and a virtual power plant:

Virtual Power PlantsMicrogrids
Integrated into the electric gridMeant to work off grid
Made up of resources connected to any part of the gridLocation specific
Managed via data aggregation (mimics a tradtional power plant control room)Managed via inverters and switches, on-site power flow and electricity quality management
Wholesale marketEnd-user power supply

How do VPPs and Demand Response work together?

The differences between a VPP and demand response can get a bit confusing. This is because at a basic level, demand response initiatives are tools used for virtual power plants.

With demand response, end users agree to let utility companies remotely shut off appliances that use a lot of electricity during times of peak energy demand. Thanks to technological advancements, demand response programs have become more automated, and thus an efficient element for VPPs.

The biggest differentiator between the two strategies is demand response is a way to reduce energy demand, while VPPs increase energy resources (supply). Both, however, have the same outcome.

How do virtual power plants generate money?

Much like how the nature of virtual power plants is to pool various energy resources, there are also various ways in which VPPs can make money.

One example is infrastructure. Virtual power plants can be used as an alternative to building expensive equipment upgrades to save money like this use case in Australia.

Another way VPPs are generating money is by giving homeowners the ability to participate in pilot programs for monthly cash incentives, like this one in Portland, Oregon.

Companies in the U.S. employing VPPs

While virtual power plants aren’t the norm yet, they’re well on their way. Below is a list of some of the VPPs currently operating in the U.S.:

UtilityVPP LocationProgram
Green Mountain PowerVermontBring Your Own Device
Partnership with Renewable Energy Vermont.
Homeowners can earn up to $10,500 toward their home battery purchase when they enroll in the program and share their stored energy with Green Mountain Power.
Con EdisonNew YorkVirtual Power Plant
Partnership with Swell Energy.
Swell Energy will help cover upfront costs of a home battery system, as well as provide ongoing incentives to those who participate in the program.
Partnership with
Through's app, participating EV drivers have their charging reduced during ERCOT Emergency Response Service (ERS) events. In return drivers receive "off-bill rewards".
SunPowerMassachusetts, Connecticut & Rhode IslandConnectedSolutions
Partnership with SunVault.
SunVault battery energy storage system (BESS) customers can earn "hundreds" in cash incentives per year for giving utility access to their stored energy during peak demand.

VPPs Aren't New

Although the concept of virtual power plants is progressive in nature, they aren't new. In fact, utilities have been experimenting with VPPs for a few years. In 2020, energy provider Southern California Edison (SCE) and solar plus storage company SunRun launched one of the largest residential energy storage VPPs in the U.S.

And vehicle-to-grid (V2G) technology leader Nuvve is bridging the gap between the clean energy and electric vehicle industries by offering solutions for EV owners to send energy back to the grid.


Virtual power plants are excellent alternatives for utilities to combat peak electricity demand. Not only are they better for the environment, but they’re better for the economy too. This is because when utilities are able to rely on residential storage systems to send energy back to the grid, or tap into smart devices to decrease a home’s energy consumption, they don’t have to build additional energy facilities powered by fossil fuels. Companies in the U.S. have been experimenting with VPPs for years to combat the increased energy demand and climate change.

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