This Week in Hyperscaling: The Rise of Virtual Power Plants
Distributed generation is on track to have more than a moment
If you’ve talked with me lately, you know I’m fully immersed in an obsession with Virtual Power Plants (VPP, also called Distributed Power Plants or DPP).
The concept is simple: take your rooftop solar and add a home battery, throw in a smart thermostat and eventually an electric vehicle with two-way charging enabled, and you’re capable of operating not just as a customer, but as a vendor to the utility. When the grid is under stress, the utility can call upon your resources to serve peak load—and compensate you.
Of course, the utility has to be set up for this, but there are successful pilots all over the country:
Credit: VP3+/RMI, “Virtual Power Plant Flipbook.” Worth a read in full!
The utility industry has traditionally been resistant to concepts like net metering, arguing that losing customers to their own rooftop solar means more system costs need to be borne by fewer customers—those who can’t afford to install their own panels. And an overabundance of solar electrons spill on to the grid when power is cheapest, then disappear en masse right at peak time. And oh by the way, net metering policies typically force the utility to pay retail prices for a product they trade at wholesale.
But the economics of energy are changing. Suddenly we need every electron we can get, and it will take time to build large central station power plants. Meanwhile, hyperscalers are prepared to pay for speed to market. This should make utilities more willing to relinquish residential customers to their own home energy systems, and it should make them willing to pay meaningful compensation when customers pair rooftop solar with a battery for arbitrage. And further, they should be worried that a smart startup will come along marketing these opportunities to customers and bidding the aggregated energy and capacity into organized markets, via FERC Order 2222.
Most people are served by a utility that makes money by building power plants and transmission lines, not enabling customer assets. And it’s a huge undertaking to organize all those resources, manage customer expectations and preferences, and organize payments (not just bill credits, as many net metering programs do). So it isn’t an obvious first choice resource for utilities that have typically been able to procure power more easily by building new plants or buying from the market.
That could change rapidly now that the One Big Beautiful Bill Act is law. Hear me out: solar companies are feeling decimated right now because the tax credits for rooftop and utility-scale solar are rapidly disappearing. But that could create a short-term rush for installations as well as a realization that states are ripe for legislation that enables or requires VPPs within their borders, like Virginia’s SB1100. I would not be surprised to see solar companies pivot to state policy forums to create new business models and economic structures that require little to no capital from the government but check key boxes on carbon mitigation, resilience, and consumer energy prices.
My personal view is that consumer-owned cooperatives are ideal structures to stand up VPPs. The governance structure lends itself to customer trust, enables growth like the private sector and has the sophistication to negotiate with utilities for meaningful incentives while retaining equity for consumer-members. To be sure, there are challenges here, but with challenges all around, it still might represent that path of least resistance.
Big News:
President Trump headlined an “Energy and Innovation Summit” in Pennsylvania yesterday, alongside Sen. Dave McCormick (R-PA), tech companies, and oil executives to announce $90 billion in private investment. More on the deals announced below. (“Trump Joins Tech and Energy Executives Amid AI Push,” Reuters)
The Department of Energy released a reliability report with dire warnings and calling for “radical change” in how the grid is managed and capacity gets built. The report is expected to bolster additional emergency orders to keep specific plants operating. (“Report on Evaluating U.S. Grid Reliability and Security,” U.S. Department of Energy)
This counterpoint is also worth a read.
Lots of outlets picked up this Reuters piece forecasting that the nation’s largest transmission region will struggle to keep pace with growth from data centers. (“America's largest power grid is struggling to meet demand from AI,” Reuters)
Hold up: London Economics International says demand projections are way overblown. They’re looking not just at power access limitations or efficiency gains, but chip manufacturing—another constraint altogether. (“There Aren’t Enough AI Chips to Support Data Center Projections, Report Says,” Utility Dive)
Big Deals:
Multiple investment deals were announced as part of the Energy and AI summit this week:
Google will spend $3 billion to “modernize hydropower” in Lancaster County.
Westinghouse announced plans to begin construction on 10 advanced reactors across the U.S. by 2030.
Blackstone and PPL Corporation announced $25 billion to develop data centers powered by gas-fired power plants in Pennsylvania.
Frontier Group will spend $3.2 billion to convert a former coal-fired facility in Shippingport to natural gas to power to a new data center.
FirstEnergy will invest $15 billion over X years to upgrade its grid infrastructure in the state.
GE Vernova will spend $100 million in the state, including to expand a power-grid equipment plant in Charleroi.
Big Ideas:
While PJM may be feeling the heat from rising demand, the Southwest Power Pool (SPP) rolled out a new framework for large load integration. (Is it me, or is this everyone’s favorite RTO?) (“SPP’s High Impact Large Load Interconnection Solutions: Powering Growth, Accelerating Opportunity,” SPP)
Big Challenges:
Investor-owned utilities have quietly requested rate increases from their respective public utility commissions that are twice as high as those requested in the second quarter last year. Consumers are starting to take note. (“Utilities Have Requested $29 Billion in Rate Hikes for 2025, Surpassing 2024,” PowerLines)
Texas continues to struggle with integrating large loads, providing a ground for state legislation that could pop up in other places where development is not far behond the Lone Star State. (“Data Center Activity “Exploded” in Texas, Spiking Reliability Risks,” Utility Dive)
Add Ohio to the list of states pushing back on data centers’ energy demands. (“Energy Costs are Rising. This State Says Tech Companies Must Pay More.” The Washington Post)
Big Questions:
Will the AI moratorium return? Anthropic is calling for a “Secure Development Framework,” a model for federal legislation that would have the effect of preempting the patchwork of state rules. (“The AI Company That Wants Government Rules,” Politico)
Are we good to send chips to China, or nah? Manufacturers are saying President Trump’s policy barring sales of their chips to China has been reversed, but official word is scant. (“Nvidia Says U.S. Has Lifted Restrictions on A.I. Chip Sales to China,” New York Times)
That’s it for this week! Send me news and stories on our favorite topic, especially all things VPP.