VPPs 101: An Introduction to Virtual Power Plants

A VPP is a network of distributed energy resources that work together to support the electric grid while providing important services to the community. Instead of relying on a single large power plant, VPPs coordinate many smaller, customer-side resources to deliver similar services—cheaply, cleanly, and quickly.

A VPP is not a centralized power plant. It is a software-enabled system that aggregates and coordinates energy resources located in homes, businesses, and communities. While it is called “virtual,” it aggregates very real physical resources. 

These resources are monitored and dispatched together—by a utility, an aggregator, or sometimes customers themselves—to respond to grid needs in real time. 

You will hear the terms “VPP” as well as “Distributed Power Plant” or “DPP” and “Aggregated Distributed Energy Resources” or “ADER” used almost interchangeably by industry leaders.

A VPP can include many types of distributed energy resources (DERs), such as rooftop solar, battery storage (residential, commercial, or community-scale), EVs and EV chargers, smart appliances (e.g., water heaters, HVAC systems), flexible commercial and industrial loads, or energy efficiency measures with controllable demand. 

Individually, these resources are usually quite small. Aggregated, they become powerful. 

VPPs can provide many of the same core services as traditional power plants, namely capacity, energy, and ancillary services. They can be called on—"dispatched”—by a grid operator to increase the power supplied to the grid if needed, or to lower demand for power requested from the grid. This allows VPPs to reduce peak demand during high-stress periods, balancing supply and demand in real time and improving grid reliability, especially during extreme weather events. This avoids the costly and polluting impacts of running emergency (“peaker”) fossil fuel plants. 

Because VPPs make use of many distributed energy resources, they can help defer or avoid entirely costly grid upgrades, which lowers system costs for utilities and for customers. They also provide reliability services to the grid, which take many different forms. For example, VPPs can control reactive power to ensure voltage remains within safe operating ranges by managing how electrical components oscillate relative to one another. They can also provide power quality services, making rapid, fine-grained adjustments to the shape of the electrical waveform to mitigate distortions and protect grid equipment. These are two examples of grid reliability services, but there are many more. 

Yes—when designed optimally. 

VPPs can lower energy bills, improve resilience during outages, bring investments into underserved communities, enable participation by renters and low-income households, and replace polluting peaker plants in overburdened neighborhoods. 

Equity-centered program design ensures VPPs deliver benefits where they are most needed. 

Traditional demand response typically involves limited, one-way load reductions during emergencies. VPPs go further. They combine many types of resources and can export power when needed, in addition to curtailing load. They operate more frequently and predictably, and can provide multiple grid services, not just peak shaving.

They also create new revenue streams for participants and can be designed to prioritize equity and community benefits.

VPPs are inherently collaborative and can involve utilities and grid operators, third-party aggregators, state and local governments, community-based organizations, homeowners, renters, businesses, and institutions, and financial institutions like community development financial institutions (CDFIs) 

Well-designed VPPs align incentives so participants are compensated, systems are reliable, and benefits are broadly shared. To learn more about compensation, see our VPP Programs Summary Table and Program Design for VPPs issue brief.