Virtual power plants (VPPs), an aggregation of distributed energy resources, provide a deeper integration of demand flexibility and renewables on our energy grid, which can offer cleaner and more affordable power. They operate by aggregating distributed energy resources (DERs) to meet grid needs and optimize consumer energy usage. By aggregating the power of several DERs, a virtual power plant can deliver the same service as large central power plants.

Virtual power plants also empower consumers to be part of the energy grid. Utility or third-party implementers can pay customers to reduce energy usage at certain times and even provide their own power to the grid. Other programs can offer reduced rates for charging or running electric appliances at certain times or tapping into renewable energy when there is excess.

Across the country, states have started to take advantage of this model to create more reliable, flexible, clean energy grid. This blog provides a preview of the adoption of this technology in Texas to increase reliability, California to enable energy optimization, and Hawaii to meet clean energy mandates.

Texas: Aggregating Power for Reliability

In recent years, growth of energy demand in Texas coupled with extreme weather events has placed strain on existing resources and resulted in blackouts. Most notable among these was Winter Storm Uri, where the state experienced blackouts, price shocks, and reliability issues, with low-income communities of color hit the hardest. The state found that investing in distributed energy resources and creating virtual power plants could mitigate blackouts from extreme weather and alleviate strain on the grid during periods of high demand.

In 2022, the Public Utilities Commission of Texas announced that it would be looking to virtual power plants to improve grid reliability and lower costs. This inquiry was initiated when the Commission learned that nearly three GW of distributed generation already exists in Texas and that adoption of these resources is growing.

In November 2022, Texas approved its first aggregated distributed energy resource pilot (ADER). The pilot will provide 80 MW of flexible resources to the grid through thousands of small sources. The program leverages many different sources because it is open to customers “with any combination of generation, energy storage technologies, or controllable load.” The pilot will run for three years, giving time for Texas to establish standard market rules and systems to accommodate integration of all ADERs.

California: Considering A Statewide Distribution System

California has a long history of implementing distributed energy resources, and in recent years has prioritized investment in and regulation of a distributed energy resources market. The state is planning to use DERS to create a reliable, clean energy grid, as extreme weather events increase in the state and the demand for electrification rises. In 2022 California embarked on stakeholder-led workshops to establish a potential distribution system operator (DSO)A DSO is an independent entity that would plan and oversee the use of a statewide system of DERs. The oversight could entail regulating a neutral market where DER aggregators bid on resources, or the DSO could act as a utility, leveraging various DERs, or virtual power plants, across the state.

As this process unfolds, California utilities currently offer their own VPP programs to address summer peaks. PG&E offers two DER programs that pay customers to provide additional energy during times of high demand. One program pays customers with battery storage to discharge power during times of excess energy demand. This program operates like a peaker plant, turning on only when demand exceeds base capacity and sitting idle during the rest of the year. PG&E will also offer a program to pay homes with battery plus solar to provide power during summer evenings. This program increases the baseload available to all customers from 7-9 p.m. every evening, acting as a power plant. To participate, customers program their devices to discharge at the times required and receive a payment upfront.

Like Texas’ pilot, PG&E’s program will run a few years as the state establishes a framework and system to assess the opportunities available to the state with DERs and integrate them into energy regulation and planning.

Hawaii: VPPs to Equitably Achieve Climate Goals

The electricity system in Hawaii is in a period of dramatic transition, evolving from centralized fossil-fuel-based generation to renewable energy. Hawaii lawmakers passed legislation in 2020 to phase out coal-fired power plants by 2022. This legislation was part of a broader effort to combat climate change that also included a carbon neutral mandate by 2045. In September of 2022, the last coal-fired power plant in the state was retired. To achieve this milestone, Hawaii had to ensure that it had enough renewable and distributed energy resources to keep up with its energy needs.

Energy efficiency plus distributed energy resources has been a fundamental part of Hawaii’s clean energy transition, as these projects can be more cost-effective than constructing renewable energy generation. In 2019, the state established a low-income-focused on-bill financing program for energy efficiency with renewable energy retrofits. These retrofits were accessible to residential and commercial building owners, including homeowners, renters, non-profits, small businesses, and multifamily rental properties. The program covers the cost of installing solar-, solar water heaters, and other clean energy improvements. To secure funding a project must be projected to lower the customer’s net energy cost, including the new on-bill repayment fee.

More recently, Hawaii Energy has been expanding its program offerings to offset residential lighting and water loads, after finding that those tend to be the largest coincident peak loads. For lighting, the program offers smart lights, which have been shown to reduce energy costs. For water heating, the utility is looking for ways to drive adoption of heat pump water heaters (HPWH), as well as initiating a pilot to see the potential for HPWH to support load reduction.


As states look to transition to an equitable, flexible, clean energy grid, distributed energy resources provide the opportunity to leverage current resources to meet changing grid needs. Integrating DERs and virtual power plants into grid planning can help states fill gaps in their clean energy grid, optimize the use of energy generated and used, and pay customers for providing energy to the grid. With federal funding available to invest in energy efficiency and clean energy resources, now is the time for states to consider ways that DERs can help to transition their grid and lower costs to consumers.

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