What is a virtual power plant?

VPPs exist to support grid resiliency. Unlike a central power plant, VPPs have several different energy assets, which reduces the impact of a single point of failure. If a VPP acquires enough devices, it could even scrounge up enough kilowatts of electricity to offset megawatts (1 megawatt = 1,000 kilowatts) of power plants. 

This is a huge benefit when you consider catastrophic weather events that cause blackouts. For example, the 2021 winter storm in Texas caused a massive electricity generation failure that wiped out power to millions of homes for days. Even more shocking, officials said the grid was close to a major failure that could’ve led to months of outages.

And if there ever is a grid outage, some VPPs can even keep your lights on, whether at the community scale or just in your own home. If the VPP includes energy storage devices with islanding capabilities, they can provide backup power during blackouts.

Most of the U.S.’s power grid is outdated and needs major upgrades to meet increasing electricity demand. VPPs can reduce the need for these big, expensive construction projects by providing alternative means for securing electricity. For instance, virtual power plants can (and have) offset the need to build new central power plants, pricey transmission lines, and substation upgrades—costs that would be passed on to ratepayers.

Your solar and storage system provides the necessary electricity to create a VPP. If you allow that VPP to use your devices to support the grid (rather than just your home), you should receive some financial compensation. How much you’ll earn varies by plan, utility, and location, but a 2024 California VPP study revealed participants could earn between $500 and $1,000 per year. Joining the Pacific Power Wattsmart Battery program with a Powerwall 3 reportedly earns customers $3,000 upfront, which can be applied toward the cost of the battery installation.

Spikes in electricity demand often drive up rates because utilities have to pay more for power generation. Sometimes they even turn to “peaking power plants” to meet high-electricity demands, which are more expensive, emit more greenhouse gas emissions, and are usually less efficient than typical power plants.

Virtual power plants help stabilize demand using lower-cost, rooftop-generated power and help utilities avoid turning to costly alternatives during grid strain. Research suggests that VPPs can reduce electricity costs by $140 per household annually.

Many VPPs tout that allowing their energy experts to manage your home devices can help improve energy efficiency in your home and provide more control over your daily electricity usage. For example, they might switch your electricity draw to your home battery if there’s high demand on the grid, or lower your AC by a few degrees 

When you join a VPP, you grant the operator access to your devices, which means they can do things like control your home’s thermostat or take energy from your solar battery when they see fit.

Imagine this: Your operator tells you they’ll raise your home’s temperature a few degrees between 12 p.m. and 4 p.m. on a 95-degree day. Of course, you get paid to help reduce increased electricity demand, but it could come at the cost of discomfort (four hours without AC). It also may negatively affect your home’s energy efficiency in some cases; If your VPP operator turns off the AC in the middle of a hot day, your system will have to use a lot more energy to cool down your home again. 

Another scenario: During an unexpected power outage, your VPP grabs the excess energy you had stored in your home battery to supply the grid. At night when you go to switch on your battery to power your home, you find it’s already drained and are left without power.

You’ll typically get at least 24-hour notice before a VPP accesses your device, and, depending on your contract, you may be able to opt out a few times a year. Be sure to read the fine print and ask questions before you sign anything.

Your VPP operator using the stored energy in your battery can be inconvenient, but what’s worse is that it may eat away at your savings. If your VPP uses all your stored energy, you’ll have to pull electricity from the grid instead of using your own—often when it’s more expensive.

We see this with Hawaii’s Bring Your Own Device (BYOD) VPP program, where battery owners agree to send energy to the grid for two hours each night, earning $25 monthly, plus additional earnings for the excess energy you send to the grid (amount varies based on where you live and time of day). Unfortunately, signing up for the BYOD program means you’ll also switch to a time-of-use (TOU) electric plan where electricity prices triple from daylight to evening. So, if your battery is drained by the VPP, you’re forced to pay the 3x electric rates to power your home at night.

Meanwhile, if you don’t sign up for the program, you’d have free electricity from your solar panels during the day and free stored electricity from your battery at night. Your overall utility savings would likely be much higher than the promised $25 monthly earnings.

Importantly, this isn’t always the case. There are instances where your battery would still have plenty of leftover energy after a VPP uses some. There are also VPPs that offer much greater earnings potential, so joining is a no-brainer. Just make sure you read the fine print.

It’s usually beneficial to join a VPP if you have solar panels and a solar battery. But it’s worth noting that a solar battery’s performance degrades the more it’s used. As a result, allowing an aggregator access to your battery will accelerate degradation.

That said, degradation is normal for solar batteries. If you’re not using your battery too often, it shouldn’t make too big of an impact to “share” your battery with a VPP, and it will likely be worth the compensation.

The more digitally connected we are, the greater our risk of being hacked; of course, virtual power plants are no exception. When you join a VPP, your home device information and data become part of a network that could be vulnerable to cyberattacks. A 2021 report showed that the energy sector is a top target for cybercriminals, and 2024 data show there were over 1,100 cyberattacks on U.S. utilities between January and August 2024 (up 70% from 2023).

We don’t mean to scare you. Most reported attacks caused headaches and losses for the utilities, not homeowners. Plus, there are ongoing efforts to increase cybersecurity measures for VPPs. But it’s a risk worth considering, and we recommend asking your VPP provider for details on the types of data they’ll collect and what security measures they take to ensure privacy.