The growing adoption of technologies like artificial intelligence and electric vehicles is driving a sharp increase in energy consumption. Combined with extreme weather events like California heat waves and deep winter freezes in Texas, this growing demand is putting significant strain on an already overburdened power grid. Virtual power plants offer a digital solution to managing these physical problems.
Virtual Power Plant Definition
A virtual power plant (VPP) aggregates multiple small-scale energy resources into one unified, digitally coordinated system. These resources — whether they be home solar panels, electric vehicles or smart appliances — work together to support the grid by adjusting their energy production and consumption in real time.
These software-driven systems are designed to aggregate and coordinate thousands of small, distributed energy resources (rooftop solar panels, home batteries, smart appliances, etc.) into one, unified network that dynamically responds to grid needs in real time. By adjusting consumption patterns, virtual power plants optimize when and how these resources operate — storing renewable energy when it’s cheap and abundant, then releasing it when the grid is stressed or prices spike. This not only helps prevent blackouts but it also reduces reliance on costly, carbon-intensive “peaking” power plants that were traditionally used to meet surging demand.
Although the rollout is slow, virtual power plants are helping to democratize energy systems, giving individuals more control over how their power is generated, stored and used.
“Now, when someone installs a home battery, rooftop solar, a smart thermostat or buys an EV, they’re not just a consumer — they’re an active participant in the grid,” Patti Smith, electricity decarbonization lead at Carbon Direct, told Built In.
What Is a Virtual Power Plant?
A virtual power plant is a network of decentralized, small-scale energy resources that are digitally coordinated to operate as a single power plant. Unlike conventional facilities that generate electricity from a single physical location, VPPs rely on software to manage thousands of distributed devices, which are often spread across neighborhoods, cities or even entire regions, adjusting their energy output and consumption in real time based on grid needs.
These devices — including rooftop solar panels, energy storage systems, electric vehicles and smart home appliances — are typically owned by individual households or businesses. Depending on supply and demand, they can either feed electricity back into the grid or reduce their usage as needed. By tapping into this flexible network, VPPs can help make grids more reliable, reduce carbon emissions and lower costs.
Virtual Power Plants vs. Microgrids
A virtual power plant is a networked system of energy resources that operates across the broader grid, while a microgrid is a localized energy system that can operate independently from the main grid. Microgrids typically serve a specific community, campus or facility, whereas the devices that connect on a virtual power plant can span an entire neighborhood or city.
“While both systems are typically behind the meter, microgrids focus on localized resilience, whereas VPPs aggregate multiple distributed energy resources across a region,” Allan Schurr, chief commercial officer of Enchanted Rock, told Built In. “A VPP is always connected to the grid and generates revenue by selling power to the grid. On the contrary, a microgrid can run independently from the grid to provide energy reliability and resilience for critical infrastructure and business operations but can also sell power back to the grid in some markets.”
How Do Virtual Power Plants Work?
A virtual power plant links thousands of small, distributed energy resources into one coordinated system, using cloud-based software that monitors, predicts and controls energy flows in real time. From rooftop solar panels and wind turbines to EV charging stations and smart thermostats, these devices use sensors and communication tools to transmit data to a central control platform, where the VPP monitors variables like electricity demand, grid conditions, weather patterns and energy prices.
With the help of predictive algorithms, the virtual power plant analyzes all of this information and sends instructions back to each device, adjusting how and when they use or supply energy. For example, during periods of high demand, the system might dispatch stored battery power to the grid, turn down a smart thermostat or delay EV charging until demand drops. The goal is to strategically shift energy where and when it is needed most, helping to keep the grid stable, efficient and resilient.
Unlike microgrids, which can operate independently, VPPs always remain connected to the main power grid. And they’re often managed by a utility company or third party aggregator.
“Instead of replacing the existing grid, virtual power plants support it by distributing energy strategically,” Jaro Nummikoski, co-founder of solar energy company Atma Energy, told Built In. They move energy within the network “to keep the grid balanced and stable,” he continued, “enhancing the grid rather than fully operating on their own.”
Benefits of Virtual Power Plants
Grid Flexibility
Virtual power plants make the power grid more flexible, meaning it can respond more quickly to fluctuations in supply and demand.This makes the system more reliable, too, as they’re able to adapt to sudden grid imbalances. For example, in the event of a heatwave, a VP can lower the thermostat setting across thousands of homes, or send stored energy back to the grid before it crashes into a blackout.
Cost-Effectiveness
Compared to conventional plants, virtual power plants come at a bargain. According to a 2023 analysis, VPPs can be up to 60 percent more cost-effective than peaker plants during times of high electricity demand. This is largely because they tap into devices people already own instead of requiring costly new infrastructure and the ongoing maintenance expenses that come with it. In the long run, experts say this approach could save the power sector up to $17 billion by 2030.
Lower Carbon Emissions
Virtual power plants rely on clean, distributed energy resources like rooftop solar panels and home batteries instead of centralized, fossil-fuel-based power generation, helping to reduce reliance on carbon-intensive peaker plants and support broader decarbonization goals. A 2024 Rocky Mountain Institute report projected that virtual power plants could reduce emissions anywhere from 12 to 28 million metric tons annually by 2035 — the equivalent of taking millions of cars off the road.
Energy Equity
Virtual power plants allow everyday energy users — households, small businesses, schools — to participate in the energy market, sometimes earning compensation for doing so. By enrolling in local VPP programs like Sonoma Clean Power’s GridSavvy community and PG&E’s SAVE project, homeowners can receive payments or bill credits for shifting their energy use during peak times — saving households up to 20 percent in energy costs.
Challenges of Virtual Power Plants
Enrollment Barriers
VPPs rely on energy contributions from homes and businesses, but participation remains inconsistent for various reasons. For one, enrolling can be a headache — these programs often have inconsistent rules and vague incentives. And public outreach can be spotty. As a result, many people don’t even realize these programs exist, let alone how to take advantage of them. This lack of clarity and accessibility continues to hamper widespread adoption of virtual power plants, particularly in underserved communities.
Cybersecurity Risks
Virtual power plants rely solely on digital communication and control systems, making them vulnerable to cyberattacks that could disrupt grid operations or manipulate energy flows. They are also designed to operate across hundreds, thousands and potentially millions of devices, creating a sizable attack surface. A targeted breach could lead to power outages, data theft or even damage critical infrastructure.
Lack of Interoperability
Virtual power plants bring together a wide range of devices — from solar panels to smart thermostats — all of which are likely made by different manufacturers with varying standards. And yet, all of these components must seamlessly connect to the same grid ecosystem. Making this happen requires an evolving set of advanced software, secure data exchange protocols and common technical standards. Without true interoperability, a VPP risks becoming little more than a patchwork of disconnected gadgets, undermining its overall efficiency and reliability.
Policy Roadblocks
Most power grids in the United States were not designed to accommodate distributed, customer-owned energy systems. And existing regulations often limit how virtual power plants can access wholesale energy markets, or prevent them from being fairly compensated for the services they provide. While policies are beginning to evolve, progress varies widely by state, creating roadblocks that continue to slow the broader adoption of VPPs.
Why Are Virtual Power Plants Important?
Virtual power plants are important in that they help manage the rapidly growing energy demand driven by things like AI data centers and electric vehicles — demand that’s expected to jump by 100 gigawatts by the end of the decade. Now, governments and utility companies alike are looking to novel technologies like virtual power plants to manage that demand, while also supporting decarbonization efforts.
VPPs currently hold an estimated 30 to 60 gigawatts of capacity across the United States, and the Department of Energy reportedly plans to triple that number by 2030. This growth could meet 10 to 20 percent of peak electricity demand, while simultaneously cutting grid costs by about $10 billion annually and replacing more than 200 new fossil-fuel peaker plants. It could also enhance grid reliability — preventing potentially dangerous blackouts.
“Power outages can have life-or-death consequences,” Smith said, citing an Arizona study that links increased mortality rates to extreme heat during blackouts. “This is exactly where virtual power plants come in.”
So far, government initiatives and utility programs are leading the push to expand VPPs — particularly in Europe, where policy support and high renewable adoption have accelerated deployment. Success can also be seen in the private sector, with Tesla’s rollout of residential Powerwall batteries, which aggregates electric vehicles as flexible grid resources, and NextEra Energy’s VPP program, which pools solar panels and battery systems from across its network.
Frequently Asked Questions
How does a virtual power plant work?
A virtual power plant works by digitally connecting and controlling multiple decentralized energy resources, using sensors and communication tools that transmit real-time data to a centralized platform. With the help of predictive algorithms, VPPs continuously monitor external factors like grid demand, energy prices and weather conditions, and send precise instructions to each device accordingly, adjusting how and when they use or supply energy.
What are the disadvantages of a virtual power plant?
The slow adoption of virtual power plants is largely due to enrollment processes, inconsistent incentives, interoperability issues and limited public outreach — especially in underserved communities. Being a software-based technology, VPPs are also vulnerable to cybersecurity risks.
How many virtual power plants are in the U.S.?
There is no definitive count of individual virtual power plants in the United States. But as of 2023, the country’s total VPP capacity was estimated to range between 30 and 60 gigawatts
What is the difference between a virtual power plant and a microgrid?
A virtual power plant is a cloud-based system that coordinates several distributed energy sources spread across entire neighborhoods, cities or even regions, adjusting their energy output and consumption in real time based on the needs of the main grid. In contrast, a microgrid is a localized energy network that can operate independently from the main grid, typically serving a specific community, campus or facility.
