First, there was demand response—asking customers to reduce their energy use during times of high grid demand and paying them for it.
From that emerged the virtual power plant (VPP), which added scale to demand response by bringing multiple customers together who can simultaneously ease pressure on the grid. Batteries were added, making response quicker and more precise.
Now the distributed energy industry is taking the VPP concept and doing what it does so well — innovating to produce more benefits.
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This is apparent in a straw proposal (Docket No. QO26030099) before the New Jersey Board of Public Utilities (NJBPU) on how the state should build a virtual power plant program. Issued by board staff, the proposal calls for rolling out a full open-access, market-based VPP program, starting with an interim program from 2027-2029 to reduce peak demand.
The effort emerged from an energy emergency order issued by Gov. Mikie Sherrill in January on her first day in office.
Several of the VPP ideas introduced in the proceeding go well beyond the familiar model of aggregating residential batteries and smart thermostats. They include CHP-powered microgrids, community-owned batteries, energy efficiency, utility-owned distributed resources and a statewide marketplace where utilities — and potentially data centers — could buy flexibility.
The differences are not merely technological. The commenters offer competing ideas about who should own the resources, who should dispatch them, who should buy their services and where the financial benefits should flow.
Nor are they merely innovation for innovation’s sake. They’re grounded in the idea that the virtual power plant concept offers possibilities beyond easing peak demand on the grid.
As Gary Fromer, CEO of DCO Energy, put it: “New Jersey’s VPP should do more than aggregate existing flexible loads. It should create a practical pathway for distributed resources that can add effective capacity, relieve local constraints, defer infrastructure, improve resilience, and integrate future solar, storage, and flexible load.”
The proceeding is gathering a lot of attention — about 60 comments were filed in August. Here are six that caught our attention.
1. Put microgrids inside the virtual power plant
DCO Energy says that by focusing largely on thermostats, water heaters, electric-vehicle charging, solar, and storage as customer-sited elements of a virtual power plant, New Jersey’s proposal excludes a valuable class of controllable resources — microgrids.
The New Jersey-based microgrid developer pushes in particular for what it calls sustainable microgrids — those that use combined heat and power and solar. It estimates that the state has roughly 100 sites suited for sustainable microgrids ranging from 2 MW to 10 MW.
It proposes a model that differs from a conventional residential VPP that aggregates thousands of small devices. It would assemble portfolios of larger microgrids that can reduce load or supply capacity where the grid needs it.
It also differs in that the microgrids would offer services beyond peak load reduction and capacity. DCO points to multiple value streams, such as a microgrid’s ability to keep power flowing during an outage and, in some cases, offset the need for grid upgrades.
How would this work from a policy perspective?
It begins with a stakeholder working group identifying potential sites for an interim commercial and industrial demonstration and eventually moves toward a microgrid tariff offering upfront incentives, annual availability payments and performance payments.
DCO favors customer or third-party ownership rather than default utility ownership. But it proposes giving utilities an incentive to procure distributed solutions when they cost less than traditional grid upgrades.
The company argues that microgrid incentives cannot be the same as those for other VPP resources, like thermostats, because microgrids are more capital intensive. DCO recommends a tariff or contract of at least seven years.
2. Let data centers finance community virtual power plants
Clean Energy Group brings equity and data-center growth into the VPP discussion.
The non-profit organization wants the interim program to include measurable equity requirements from the start, supported by annual reporting and a dedicated equity working group. It also views an availability payment as a potential guaranteed minimum for customers who keep their resources ready but are rarely dispatched.
One of its most notable ideas involves data centers.
CEG suggests that data centers could satisfy “bring your own capacity” requirements by financing VPP resources in surrounding communities. Rewiring America has been promoting a similar idea. Instead of developing generation entirely behind the data-center fence, a company could help fund batteries, flexible loads or other distributed resources for nearby households and businesses.
CEG also proposes using VPPs to help retire fossil-fueled peaker plants. This could come in the form of a locational incentive or peaker retirement plan incorporated into the VPP program.
3. Create a community-benefit VPP
Cammie Croft, who previously worked in the Obama White House and as an executive at Rewiring America, presented a model for a community-benefit virtual power plant.
A model Croft calls Common Current begins with a nonprofit or other public-benefit owner installing batteries in homes without requiring households to supply upfront capital, assume debt or face potential clawback obligations.
The organization would own the batteries, aggregate them into a VPP and return a portion of the revenue earned to participating households and communities
The program is designed to reach households that earn too much to qualify for traditional low-income programs but still cannot readily afford distributed energy equipment.
Long-term performance and durability obligations would follow the asset owner, not the household. That could protect residents if they move or otherwise can’t continue participating.
Common Current also connects its proposal to data-center growth. Community VPPs could give data centers another way to satisfy demand-reduction or capacity obligations while leaving useful energy infrastructure in their host communities.
The model attempts to overcome a persistent weakness in residential DER programs: The greatest benefits often flow to homeowners with the capital, credit and suitable property needed to purchase equipment.
4. Combine the retail supplier and VPP models
Austin-based home battery and energy company Base Power proposes a model in which a competitive retail electricity supplier also installs, owns and dispatches batteries at customers’ homes.
Customers receive backup power and potentially lower electricity prices without purchasing the battery outright. The competitive supplier aggregates the batteries and uses them to reduce capacity and transmission costs associated with serving its retail load.
The financial model therefore does not depend entirely on a separate incentive payment. Some of the value comes from lowering the supplier’s capacity and transmission obligations, with savings passed through to customers.
Base wants New Jersey to create a clear pathway for this type of integrated retail-supplier VPP. It argues against duplicative aggregator licensing and wants exporting customers to be able to register negative peak-load or transmission contributions rather than simply being assigned a zero.
It also wants verified VPP performance reflected in PJM Peak Shaving Adjustment submissions and future load forecasts.
Base objects to applying some of the straw proposal’s general restrictions to this model, including a requirement that 70% of program payments flow directly to customers and a proposed 40% cap on any one aggregator’s share. Those rules, it argues, do not fit a business model in which the company owns the assets and delivers customer value partly through lower rates and backup power.
5. Leverage human behavior
Oracle Utilities’ Opower offered a different way to broaden VPP participation: Treat changes in customer behavior as a grid resource, even when no smart device is involved.
Behavioral demand response uses targeted emails, text messages, automated calls and other communications to ask customers to reduce or shift electricity use during periods of high demand. As Opower put it, “the resource being mobilized is customer behavior rather than a remotely controlled device.”
The approach could extend VPP participation to renters, lower-income households and customers who do not own batteries, electric vehicles or smart thermostats. It also gives customers an option if they are willing to alter their electricity use but do not want an outside party controlling a device in their home.
Opower characterized behavioral demand response as both a grid resource and an entry point into more sophisticated VPP programs. Customers could begin by responding voluntarily to peak-period messages and later enroll a thermostat, EV charger, battery or other distributed resource.
6. Design a neutral statewide flexibility marketplace
London-based flexibility marketplace company Piclo is proposing infrastructure through which aggregators and other flexibility providers could compete.
Under its model, New Jersey’s electric distribution companies would publish where and when they need grid services. Flexibility providers would offer qualifying resources, and a common statewide platform would support qualification, procurement, tracking, reporting and settlement.
Piclo stresses that it is not an aggregator, would not take market positions and would not compete for participant compensation. It would operate the marketplace connecting buyers and sellers of flexibility.
The company warns against creating four fragmented systems—one for each electric distribution company. It instead favors a statewide registry and common rulebook, with firm deadlines for utilities to supply the grid and program data needed by market participants.
During the interim period, utilities could retain dispatch and reliability authority while aggregators compete to provide the resources.
The model also leaves room for new buyers. Large loads, including data centers, could potentially purchase or finance flexibility directly rather than relying exclusively on utility procurement.
What’s next?
The commenters were reacting to a straw proposal by NJBPU staff that lays out a two-stage path for building a statewide virtual power plant market.
The first stage, the interim program, is designed to build operating experience while delivering near-term grid and customer benefits. The proposal sets a planning goal of reducing peak demand by about 3% across the state’s electric utilities — roughly 589 MW.
The proposal is technology-neutral, allowing resources such as batteries, managed EV charging, smart thermostats, water heaters, solar and other flexible loads to participate. Third-party aggregators would compete to assemble and manage portfolios, while utilities would retain responsibilities tied to reliability, dispatch coordination, data and emergency overrides.
Compensation could come through three basic channels: payments for enrolling resources, payments for keeping capacity available, and payments for actual performance when resources respond. The proposal also contemplates locational value, customer protections and safeguards against double payment.
The interim program bridges to a long-term, open-access VPP/Grid Flex tariff, targeted for around 2029. That framework would increasingly allow DER aggregators to provide distribution-grid services and potentially stack those revenues with participation in PJM wholesale markets.
After the board issues an order on the interim requirements, expected in October, utilities will file their individual plans showing how they will meet them, scheduled for the end of the year.
Still More Variations
Other commenters identified additional ways VPPs could be structured:
- The Smart Thermostat Coalition, representing ecobee/Generac, Renew Home and Google Nest, supports manufacturer-led participation using existing customer relationships. Eligible devices could be enrolled with clear notice and an easy opt-out, allowing frequent, personalized temperature adjustments rather than a handful of aggressive demand-response events..
- ChargEVC describes treating transportable batteries as mobile grid resources. Enrollment, measurement and compensation could follow the battery rather than a fixed premises meter, potentially allowing mobile storage to support EV-charging sites awaiting permanent interconnection capacity.
- The University of Delaware EV Group wants New Jersey to test vehicle-to-grid systems through regulatory and technical “sandboxes.” Its dual-use model taps batteries already purchased for transportation during the many hours vehicles remain parked.
- The Vehicle-Grid Integration Council points to electric school buses as especially promising VPP resources. Their large batteries and predictable schedules could make them valuable during summer peaks, when many buses are parked.
- Calibrant Energy represents an owner-operator model for commercial and industrial customers. Rather than merely controlling customer-owned equipment, Calibrant owns and operates behind-the-meter batteries under energy-services agreements.
- WeaveGrid proposes a distribution-aware VPP that responds to conditions at particular feeders, substations and transformers rather than dispatching resources solely for a statewide or regional peak.
- The Sierra Club raises the possibility of a public or publicly directed VPP designed to reach renters and underserved communities that conventional customer-acquisition models may overlook.
- Syntropic Capital focuses on third-party financing and on-bill repayment as ways to remove the upfront-cost barrier to participation.
- Michaels Energy describes an engineering-led commercial and industrial model that could aggregate flexible operations such as refrigeration, thermal storage and industrial processes.
