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The opportunities and challenges of VPPs

Illustration of a some plugs plugged into a cloud with outlets, and some plugs unplugged on the ground.

Illustration: Gabriella Turrisi/Axios

The market for aggregating energy load from devices like smart thermostats and EVs has big potential, but it's facing a series of challenges.

Why it matters: So-called virtual power plants could save billions of dollars and gigawatts of energy. VPPs can lower carbon emissions and make grids more resilient too.

Yes, but: VPPs haven't been adopted at levels desired due to issues like regulatory lag, lack of consumer acceptance, and wholesale market barriers.

Driving the news: Two VPP deals broke last week, highlighting how companies are looking to partner up to navigate a slow-moving market dependent on regulators, utilities and consumer adoption.

  • Google's Nest Renew service and energy management startup OhmConnect said last week that they were combining to form a new company called Renew Home. Sidewalk Infrastructure Partners — a spinout of Google's parent company Alphabet and an investor in OhmConnect — plans to fund it.
  • Software company Uplight said it's acquiring VPP company AutoGrid from Schneider Electric, which bought the company in 2022. Schneider is also an investor in Uplight.
  • Ryan Hledik, principal with The Brattle Group, described the deals as "pretty exciting developments from some of the key players in the residential VPP space."

Zoom in: The deals are similar in that well-funded entities appear to be shuffling different pieces of the VPP network to try to grow.

  • The biggest future growth potential for VPPs could come from managing EVs and EV chargers, according to a report from the Department of Energy released in September.
  • Sidewalk Infrastructure Partners' Co-CEO Jonathan Winer told Axios he sees the future growth of VPPs coming from providers managing multiple devices and new regions opening up.
  • Kenneth Schisler, Senior Vice President, Regulatory & Government Affairs, for VPP company CPower predicts that there will be a "domino effect" of states in the West and Midwest beginning to allow VPP providers to participate in wholesale markets next year.

Zoom out: Yet VPPs "currently are adopted well below their market potential," wrote Hledik in a report released earlier this year.

  • The sector needs to address regulatory and customer experience challenges to grow.
  • The DOE highlights a host of VPP barriers: it's hard for consumers to sign up; lack of operational standardizations; and complexities with entering wholesale markets.

Big picture: It's clear that if some hurdles are overcome, VPPs could bring benefits to utilities, consumers, and the planet.

  • The DOE says that tripling the scale of VPPs — deploying 80-160 GW — by 2030 could help cost-effectively manage the clean electricity boom.
  • The Brattle Group says that VPPs could save utilities $15 billion to $35 billion in capacity investment over the next decade.
  • "It would be terrible if we didn't use the intelligence of this capability today," says Uplight CEO Luis D'Acosta.

What's next: Hledik says the big VPP opportunities will grow with consumer adoption of electric vehicles and batteries, and that will still take some time to evolve.

  • VPP initiatives will also increase in 2024 partly because some regions are suddenly forecasting very rapid load growth due to the addition of data centers and manufacturing, in addition to EV charging. 
  • "It's a rate of growth that those regions haven't experienced in the recent past, so creative approaches will be needed in order to allow that to happen reliably," said Hledik.
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