Virtual Power Plants

This week we talk about peaker plants, blackouts, and at-home battery backups.

We also discuss energy resiliency, solar panels, and hydro.

Recommended Book: The Tainted Cup by Robert Jackson Bennett

Transcript

Peaking power plants, often just called peaker plants, are power plants that are only turned on during periods of high energy demand. That’s in contrast to a base load power plant, which is the sort of plant that operates more or less 24/7 to ensure there’s a steady amount of electricity available on the local power grid.

The necessity for peak-load energy varies depending on the time of year and which part of the world you’re looking at, but in general you tend to see more energy demand in the morning and evening, due to temperature fluctuations and lifestyle rhythms, like everyone being at home in the morning and returning home from work in the evening, at which point they all turn on their at-home ACs or heaters, all their TVs and lights and electric kettles and video game consoles, and that leads to an irregular surge in energy demand compared to the steady office and factory demand that was met throughout the day by the base load power plant.

When that energy demand peaks, approaching or going beyond what the base load plant can reliably provide, the peaker plant is spun up, and more energy is added to the grid to meet that demand, avoiding brownouts or blackouts—situations in which people lose access to power because there’s not enough to go around.

This also helps stabilize energy prices, because in most countries, pricing is used to manage scarce energy resources, so as a grid approaches the point where it’s running out of available electricity, prices go up in order to incentivize less energy use. Peaker plants keep those prices from going sky-high by increasing supply so that demand doesn’t push the prices into absolutely ridiculous territory.

Some peaker plants operate for a handful of hours basically every day; this is especially true in places with extreme temperature fluctuations, or in areas where the population or manufacturing activity has increased rapidly and the local infrastructure hasn’t caught up, the existing power supply supported by the backup more regularly because the base load hasn’t yet increased to meet that new, consistently higher demand.

And notably, peaker plants are often less efficient to run because they’re not meant to be used all the time. Consequently, if the base load power plant isn’t up to the task of providing enough energy for a region on a regular basis, energy can get a lot more expensive for everyone, all the time, because a power plant that was only meant to be used periodically is now being used constantly, and it wasn’t built to be efficient, it was built to come online quickly and to be used only at times of irregular, excessive need.

What I’d like to talk about today is an alternative to peaker plants that was conceived of decades ago, but which has only recently started to be deployed at scale in some areas.

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As I mentioned in the intro, a peaker power plant is meant to be turned on irregularly to meet above-average energy needs. Those periodic pops in energy demand are thus accounted for, and these peaker plants are built for that purpose, and are thus typically more expensive and often polluting compared to base load plants, as well, many of them using natural gas or coal to produce that extra electricity for the grid.

In the late 1990s, researchers posited that it might be possible to someday link energy production and storage sites together, creating a more flexible grid system they called a virtual power plant. Further research in the early 2000s expanded on this concept, looking specifically at renewable energy options and how they might be aggregated into a similar virtual power plant setup.

The basic idea here is to recreate the effect of a peaker plant—adding additional electricity to the power grid when it’s most needed—by aggregating power generating or storage assets and tapping them only when necessary. That aggregation of smaller assets, the management of that additional energy and making sure it arrives on the grid when it’s needed and at the necessary scale, is managed by software, and managing these assets in this way allows smaller production and storage infrastructure to recreate the impact of a larger peaker plant.

A German energy company called RWE launched the first real-world virtual power plant in 2008, linking nine of their hydroelectric plants together into a virtual 8.6 MW unit, the output of which could be virtually managed and deployed. A few years later in 2011, a Swiss energy company called Kraftwerke did the same with a slew of biogas, solar, and wind power infrastructure, scattered across seven countries.

This concept expanded to include demand-side residential energy assets in 2016, when the Australian city, Adelaide, enacted a program backed by the Australian Renewable Energy Agency, which saw 1000 battery systems deployed to homes and businesses across the city. Those battery systems were hooked up to solar panels, and the software managing the batteries allowed the energy stored in those batteries to act like a 5MW peaker plant.

The same general idea was then applied by Tesla across South Australia, where energy prices had long been volatile, beginning in 2018—that program reached 50,000 homes by 2022, and then the program was acquired by an energy company called AGL in 2025, which further expanded it until the virtual power plant had a capacity of 25 MW of peaker solar energy, and 37 MW of battery-stored peaker energy.

Now again, the idea here is that there’s a certain amount of energy available on the grid coming from standard base load production sources, including traditional coal and gas power plants, hydroelectric plants, and nuclear power plants. There are also solar and wind arrays that make up the baseline energy load in some parts of the world, and that baseline can be augmented by utility scale battery facilities that allow wind and solar overproduction to be stored, making those renewables more reliable as baseload options, because too much energy can be generated during the day or during especially windy periods, and the excess can be stored in those big batteries and used later, at night or when the wind isn’t blowing as hard.

What a VPP does is tackle the periods where whatever base load is available doesn’t measure up to the current demand. So when temperatures are especially high and everyone’s using their air conditioners more, and that gas plant or all those solar panels aren’t providing enough to cover that energy demand, the company operating the virtual power plant can pull energy from these scattered resources to cover that addition use. And in some cases that’ll mean pooling energy generated from small hydroelectric dams, in some cases it’ll mean pulling a previously agreed-upon percentage of the total energy stored in a home-owner’s at-home battery backup—maybe they have a battery that stores excess from their at-home solar panels, that they can use at night, but they also have an agreement with the VPP operator that allows said operator to pull some volume or percentage of energy from their battery, when necessary, onto the grid to help ease excessive demand burdens.

Often this agreement is also beneficial for the home owner who is sharing some of their excess energy with the grid in this way to help prevent blackouts and too-high energy prices. The cost of the battery installation and hardware might be subsidized, or maybe they make a small amount of money every time that energy is borrowed. There are also riffs on this model that provide the home owner or renter with a fancy thermostat that, at times of high demand, might automatically adjust their AC a degree or two higher when the grid is being crushed by demand on crazy hot days, which then ensures there’s enough to go around not by increasing supply of energy, but by reducing demand. Some of these models also made use of energy pricing arbitrage, automatically selling stored energy from these battery back-ups and then buying it when energy is cheap, which helps balance the overall grid’s energy load by contributing to it when energy is scarce and expensive, and restoring that sold energy back to the battery when energy is abundant and cheap.

Increasingly, these sorts of systems also tap into other resources that are plugged into the grid in order to reduce demand or increase supply: maybe borrowing some energy stored in a home owners electric vehicle, which is left plugged in to charge, but which also acts as another at-home battery, and quite a large one. Or maybe by reducing the power being sent to heat pumps or water heaters. Each of these devices or other assets is treated as part of that larger virtual grid, which might be composed of thousands or tens of thousands of homes and all their connected assets, and that helps manage supply and demand in such a way that both black outs and dramatically increased energy prices are a lot less likely, even on days with bizarre weather or when other, larger energy assets like power plants aren’t operating at full capacity.

This is a huge win for resiliency, and it’s also often a lot cheaper than installing and operating a peaker plant, usually around 40-60% cheaper. These sorts of systems can also be installed and activated way faster than a full-on power plant, while also dramatically reducing the amount of land used for energy infrastructure, and the bureaucracy that has to be traversed in order to get something like a power plant or solar array installed and operating; those big chunks of infrastructure can take years or decades to get online, while a VPP can often be up and running within just a few months, with no new land required, and no new interconnections, in terms of cables or whatnot—it uses stuff that’s already there in most cases, though it can also be further empowered by deploying assets, like at-home batteries, that are also useful for other things, for the home owner. Kind of a win-win.

At the moment, virtual power plant capacity is mostly limited by regulatory approval, at least in most countries. Energy utilities don’t have a lot of incentive to help move these sorts of things forward, as they get paid for building and managing traditional sorts of power assets, and VPPs are not that; sometimes an energy company will run this type of program, but only if they get to sell the hardware and are paid for managing the software that keeps it all running smoothly. At-home batteries and other such assets are competition for them, otherwise, so they’re less inclined to allow these things to move forward, and even be legally installed without a fight.

That said, the major players in the VPP space right now are Sunrun, Tesla, Renew Home, Uplight, Next Kraftwerke, and sonnen, the latter of which is the largest VPP operator in Europe, and it has recently been expanding into the US, especially in Utah.

The majority of VPP deployment is happening in California, Texas, Florida, and Puerto Rico, in the US, across South Australia, in Germany, and in China, where the first gigawatt-scale residential VPP, which aggregates the ACs and water heaters across millions of households, has been launched.

This category of energy technology has been slower to roll out than originally anticipated, back when those early models were deployed in Europe and the outcomes were considered to be broadly beneficial, because of regulations—paperwork basically—and pushback from existing utilities that didn’t want the competition. VPPs were also bundled with other renewable energy infrastructure and thus saw a huge pushback in the US in particular, during both Trump administrations, which pulled support for renewables across the board, and in some cases has actively tried to kill these industries to make even more room for oil and gas companies.

In 2025 and so far in 2026, though, the blazing fast deployment of data centers has brought VPPs back into the conversation, as data centers require just a silly amount of energy to run, and energy grids in the areas where they’re being built have been strained as a consequence, dramatically increasing energy prices.

VPPs won’t solve that problem, but they could ease the issue in many ways, including by tempering energy use, making more energy available at peak times without necessitating the build-out of expensive power plants that might not be online for years or a decade, and they can do this while also reframing the use of VPPs so that they’re no longer seen as environmental efforts, but instead as economically viable means of addressing those data center-created energy shortfalls. Which could, in turn, lead to more VPP build-outs, because they’re no longer the target of anti-renewable energy legislation and politics.

Show Notes

https://en.wikipedia.org/wiki/Peaking_power_plant

https://en.wikipedia.org/wiki/Virtual_power_plant

https://www.sciencedirect.com/science/article/pii/S2211467X2400097X

https://www.theguardian.com/environment/2016/aug/05/adelaide-charges-ahead-with-worlds-largest-virtual-power-plant

https://www.nrg.com/insights/energy-education/understanding-virtual-power-plants--a-guide-to-vpps.html

https://techcrunch.com/2026/08/19/home-batteries-are-suddenly-cheap-and-everywhere-heres-why/

https://pv-magazine-usa.com/2026/08/13/tesla-unveils-zero-down-powerwall-lease-program-with-retail-electric-plan-in-texas-touts-global-vpp-potential/

https://www.energy-storage.news/base-power-launches-100mw-vpp-programme-in-texas/

https://www.ess-news.com/2026/02/12/texas-lands-its-first-battery-only-virtual-power-plant/

https://nuwattenergy.com/en/virtual-power-plants-2026

https://www.ess-news.com/2026/06/25/sunrun-tesla-renew-home-announce-plans-for-16-8-gw-virtual-power-plant-program/

https://www.sciencedirect.com/science/article/pii/S2352484725003865

https://www.cleanenergywire.org/news/start-next-kraftwerkes-renewable-virtual-power-plant-stabilises-grid

https://www.energy.gov/edf/virtual-power-plants-projects

https://www.woodmac.com/press-releases/virtual-power-plant-capacity-expands-13.7-year-over-year-to-reach-37.5-gw

https://www.utilitydive.com/news/in-2026-virtual-power-plants-must-scale-or-risk-being-left-behind/810321/

https://ieefa.org/resources/case-virtual-power-plants

https://uplight.com/blog/virtual-power-plants-are-powering-the-grid-of-the-future-and-uplight-is-leading-the-way/

https://sepapower.org/knowledge/vpp-and-supporting-der-policy-developments-q1-2026/

https://www.energymining.sa.gov.au/consumers/solar-and-batteries/south-australias-virtual-power-plant

https://whatisavpp.com/research/topics/enpal-flexa/

https://www.canarymedia.com/articles/virtual-power-plants/rooftop-solar-industry-trump-budget-law

https://foleyhoag.com/news-and-insights/blogs/energy-and-climate-counsel/2026/july/virtual-power-plants-the-distributed-energy-revolution-has-arrived/

https://ieefa.org/resources/case-virtual-power-plants

https://sepapower.org/knowledge/vpp-and-supporting-der-policy-developments-q1-2026/

https://www.cesa.org/resource-library/resource/puerto-rico-virtual-power-plant/

https://www.energy.gov/edf/virtual-power-plants-projects

https://www.energymining.sa.gov.au/consumers/solar-and-batteries/south-australias-virtual-power-plant

https://www.ess-news.com/2025/01/16/china-launches-work-on-its-first-gw-scale-residential-virtual-power-plant/

https://www.ferc.gov/ferc-order-no-2222-explainer-facilitating-participation-electricity-markets-distributed-energy

https://www.utilitydive.com/news/in-2026-virtual-power-plants-must-scale-or-risk-being-left-behind/810321/

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