The United States could meet up to 20% of its peak demand needs with distributed energy assets if the country is able to up its virtual power plant capacity to 160 gigawatts by 2030. That would have knock-on effects like reducing spend on peaker plants, mitigating transmission backlogs, and saving $10 billion in annual grid costs, per the Department of Energy’s 2023 report on achieving commercial liftoff for VPPs.
It’s a steep target, given that the U.S. currently has just 60 GW of VPP capacity. But according to Ruben Llanes, CEO of distributed energy resources management provider AutoGrid, the market is evolving, and quickly.
This evolution has three prongs, Llanes said: blueprints for scalable VPP business models, increased understanding of the solution, and the emergence of common underlying technologies. These will serve as the framework for a distributed power generation model.
Llanes defines VPPs as a network of decentralized assets that can be harnessed by artificial intelligence-driven software to provide flexibility to the grid. He told Latitude Media that he feels like “the market is maturing.”
Schneider (which acquired AutoGrid in 2022) and AutoGrid aren’t just thinking about VPPs as a technical solution anymore, he added. The business model for VPPs has evolved, which leaves AutoGrid positioned to be a strategic partner to utilities, offering power as a service. That model is already up and running, Llanes said, in AutoGrid’s partnership with Puget Sound Energy, which the companies expanded earlier this week.
“The evolution of the business model that I think is present in Puget Sound — and which I think is the blueprint of how we hope this goes in the future — is to actually deliver software plus megawatts,” he said.
AutoGrid’s PSE partnership is, in some ways, a leading indicator of the VPP market’s trajectory, Llanes added. VPPs have existed for a while, but the scale of projects is getting larger (both in term length and in megawatts).
In Llanes’ view, developing that market requires a twofold approach. First, technology needs to advance (AutoGrid has been refining its core flexibility platform for over a decade, he said). Simultaneously, AutoGrid and companies like it must engage directly with utilities to ensure they understand where VPPs could fit into their flexibility portfolios.
Barriers to VPP scale
In the near future, Llanes expects to see the market churning out larger, multiyear contracts, and settling on common elements like the underlying AI systems that could make VPPs more easily scalable.
But there are still outstanding challenges, he added, including the slow pace of developing market rules and regulations, and evolving cost structures.
“In the end, VPPs are highly reliant upon a viable regulatory framework,” he said. In the U.S. in particular, that framework varies significantly by region, according to how each market is regulated.
Then, there are capital costs. VPP projects are likely to grow in scale over time, Llanes said, so identifying the true cost of standing them up is still challenging. And incentive structures remain opaque, he added. Combating those looming unknowns for utilities is key, Llanes said, pointing to DOE’s liftoff report as an important step towards driving industry awareness and demystifying the technology.
“If you’re trying to help an industry that can be somewhat risk averse, demonstrating the fact that it is a viable solution to what many utilities around the country and ultimately the world are facing, that’s something that is incredibly valuable,” he said, adding that the report went to “great lengths” to identify the size of the VPP market helped to define the “massive opportunity” that the technology represents.
“For Autogrid, the delivery of VPPs is absolutely critical,” he said. “It is absolutely critical that we think about the grid in a fundamentally different way, and we have utilities that are already thinking in that way.”
