Distributed energy resources (DERs) usually describe devices such as solar panels and on-site battery systems installed throughout a utility’s distribution grid. But as electricity demand continues to climb faster than new generation can come online, utilities are considering options that are even more, well, distributed.

Now that everything from thermostats and water heaters to electric vehicle charging equipment is connected to the internet, those devices are serving as DERs in some regions. This collective control of customer-­sited equipment is called a virtual power plant (VPP), and such systems could become more important in our power supplies.

U.S. electricity demand forecasts seem to climb with every new research report. For example, a December 2024 study from utility consultant Grid Strategies sees need growing by 128 gigawatts (GW) over the next five years, up from an estimate of 23 GW two years ago, largely due to data center and manufacturing growth in six regions. 

The Federal Energy Regulatory Commission updated its rolling five-year estimates to an 8.2% demand growth, up from last year’s 2.8%. Preliminary updates to that figure raise the possibility of demand growing up to 15% by 2029.

Developers are working to increase supplies in the wake of these forecasts, with renewable sources taking the lead. In October, BloombergNEF predicted 2024 would see 65 GW of new solar, wind and energy storage additions—a new annual total. Researchers anticipate solar and wind additions would top 950 GW between 2024 and 2035. But coal and natural gas plant retirements are set to rise during that time. New renewables can require new transmission to deliver their power to market, a process that can take a decade or more.

What about VPPs?

VPPs, on the other hand, can be operational relatively quickly and offer utilities multiple advantages, providing the opportunity to act as a source for electricity generation, storage and demand. This includes programs that call on energy from on-site solar panels during peak periods, count on the energy banked in on-site batteries and maximize use of available resources by storing energy when solar production is high and costs are low. 

Historically, this technology has involved customers volunteering to physically set back their thermostats during peak periods. Earlier efforts involved installing a separate meter to control customers’ water heaters during similar high-demand hours. Today’s offerings capitalize on Wi-Fi-­enabled devices that help utilities to initiate setbacks remotely.

Today’s VPP plans also benefit from artificial intelligence. Many now incorporate weather forecasts and use data to anticipate and prepare for peak-demand events by setting participants’ thermostats to precool or preheat their homes in advance of the need to turn back thermostat set points. 

Alternately, for homes equipped with storage batteries, a utility might either draw directly from that battery supply or switch the home over to its batteries for several hours. In return, those customers might enjoy lower rates or get cash credits against their monthly bills.

Utilities generally don’t run these programs themselves. Instead, they typically turn to third-party companies to enroll interested customers and operate the programs. In states where electricity is deregulated, these providers can be treated as any other generator, bidding their pool of aggregated load reduction into power and capacity auctions. 

As VPPs ramp up nationally, these providers’ products are becoming more sophisticated to help address some side effects their programs can create for utilities. First, in longer demand-response events, customers can begin to feel uncomfortable after the first couple of hours and decide to shift thermostats back to standard settings, which means the utility gets less benefit. A second issue, called “snapback,” happens when the event ends. At that point, demand can spike for a period as thermostats, water heaters and EV chargers kick into action.

EnergyHub, New York, is one VPP leader using A.I. to address these issues. Its technology can identify how much energy every device connected to its system will need during an event to determine how much individual customers will be able reduce their demand. It can then shift their participation through the duration of the demand reduction to smooth out overall power profiles.

And in Texas, Renew Home, Oakland, Calif.—a company formed in 2023 when Google Nest’s utility service Nest Renew merged with demand-response provider OhmConnect—is set to launch a new service. Focused on the Nest thermostats’ communications capabilities, plus smart plugs, compatible water heaters and other devices, the company is promising to cut a home’s demand by about a kilowatt for several hours. Working with local energy-­supplier NRG, it expects to create a 1-gigawatt VPP by 2035.

petovarga / stock.adobe.com