Xcel’s new virtual power plant program in Colorado offers a big positive. Customers own their batteries and other distributed energy resources, thereby benefiting from resilience and cost savings. But that doesn’t mean the program is perfect.
Here’s how it works and what its critics and supporters say.
Under the $79 million Renewable Battery Connect program, participating customers allow Xcel Colorado to control their batteries stored with solar when the grid is under strain. They receive an upfront payment of $350/kW of alternating current (AC) continuous power from the battery plus an $100 annual participation incentive for five years.
All Tesla Powerwall models and Enphase batteries are eligible under the program. Xcel will work with third-party aggregators to pool the resources into a virtual power plant.
Leveraging batteries reduces energy use, lowering demand and helping stabilize the grid when it’s stressed, said Lisa Andersen, a spokesperson for Xcel Colorado. It also helps the utility defer the cost of expensive infrastructure or upgrades.
“Colorado’s AVPP (Aggregator Virtual Power Plant) structure promotes customer choice, leverages existing distributed energy resources to better provide grid value and provides a clear, predictable compensation structure that encourages customers to install new batteries and other flexible load solutions at their homes,” said Wil Gehl, director, state affairs, InterMountain West at the Solar Energy Industries Association (SEIA).
Avoids Ratepayer Costs
Unlike programs under which the utility procures and owns distributed energy resources — such as Xcel’s Minnesota program — Xcel’s Colorado pilot avoids utility spending that would be passed through to electricity rates.
Another advantage is that aggregated residential batteries serving as a virtual power plant shift grid flexibility value to the distribution edge, where much of the reliability pressure is growing, especially in Colorado’s Front Range, which has high cooling loads and is experiencing population growth, said Arif Gasilov, a partner at Gasilov Group who focuses on sustainability strategy and energy regulatory analysis.
Xcel’s initial plans call for acquiring 125 MW of capacity under the program, but the actual megawatt deployment will be tied to how many third-party aggregators can meet Xcel’s technical and operating requirements in time for the first season of operation this summer, Gehl said.
Relies on Third-party Aggregators
The model relies on the aggregators to efficiently enroll customers and deliver capacity to Xcel. A main challenge to getting the program up and running is ensuring the protocols between Xcel and the aggregators are reasonable, well-designed and can be implemented quickly by both sides in order to meet demand this summer.
Several questions about program design details remain, Gasilov said. They include:
- Who pays for the costs of battery degradation resulting from more frequent cycling of customer batteries under the utility program?
- How transparent is the compensation structure for customers, and does it hold up if wholesale price signals shift?
In addition, Gasilov has equity concerns. Homeowners with newer construction or existing solar systems tend to participate in such programs, which can skew participation toward high-income households unless the program design includes renters, multi-family housing or low-to-moderate income customers.
The program includes a form for disadvantaged community members. Xcel said that for members of a “disproportionately impacted community,” the incentive is $800 per kW of storage capacity, up to 75% of the equipment-only cost, plus a $100 annual participation incentive for participating in most events.
Another possible challenge is whether the program will change.
“Programs like this depend on rate structures, interconnection rules and utility willingness to treat distributed batteries as real grid resources rather than edge cases,” said Gasilov. “If the regulatory environment shifts (as we’ve seen in other states where distributed resource policy has been contested), program economics can change for participants mid-stream.”
It’s also unclear whether these incentives are high enough to encourage customers to enroll the distributed energy resources they purchased on their own. However, as of Feb. 2, Xcel had allocated about $7.2 million of the $8.2 million 2025 incentive budget to customers, suggesting customers are signing up.
Competitive Solicitations?
Another question is whether Xcel should choose aggregators through a competitive solicitation. Xcel has chosen one aggregator, Itron, to deploy a virtual power plant in collaboration with Tesla and additional aggregators are expected to be chosen.
In a filing with the Colorado Public Utilities Commission, the Colorado Renewable Energy Society called for the commission to open the pilot to a competitive solicitation (Proceeding No. 25A-0061E).
This would allow Xcel to identify the potential for ratepayer savings earlier in the process and avoid making the program more costly than it needs to be for the next five years, the filing said. It also creates potential for market and technical innovation earlier in the process.
“A competitive solicitation is a better-suited, replicable and scalable opportunity to robustly meet stakeholder goals and objectives,” the organization said in its filing.
A Work in Progress
The program’s details are not set in stone. There will be opportunities to streamline processes, said SEIA’s Gehl. This could reduce costs for new aggregators to participate in the market and spark more customer participation, and create “an opportunity to show the real value and cost savings for capacity delivered,” he said.
As Gasilov said, the details are not yet in place, but once they are, those details will help determine whether the utility program delivers the expected advantages of pooling customer resources to meet grid challenges.
Learn more by checking out Energy Changemakers’ full series on virtual power plant competition
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