Virtual Power Plants (VPPs) have historically played a positive role in demonstrating the potential of distributed energy resources (DERs) to provide grid services and support the clean energy transition. By aggregating rooftop solar, batteries, and other assets across multiple sites, VPPs have proven the technical feasibility of using DERs for demand response, frequency regulation, and other applications. Vendors, developers, and OEMs deserve credit for pioneering this innovative model and driving initial market adoption.
Limitations of the Traditional VPP Approach vs. Utility-Led DER Deployment
However, the traditional VPP approach, relying on customer acquisition by third-party aggregators, faces inherent limitations in scaling DERs to the level needed to meet grid planning and climate goals. Despite the commendable efforts of VPP providers, customer enrollment rates remain stubbornly low compared to grid need. As Jigar Shah, Director of the Loan Programs office, pointed out in PV Magazine, "To truly unlock VPP's potential, wide-reaching deployment at the national scale is needed."
Distributed Capacity Procurement: A Utility-Led DER Deployment Model
The next frontier is leveraging utilities' unique strengths to unlock DERs' full potential through top-down planning and procurement. Under an emerging Distributed Capacity Procurement (DCP) model, utilities deploy DERs at scale by integrating them into planning as a capacity resource. The DCP model empowers utilities to lead the charge on planning, siting, deployment, and dispatch of DERs, offering a new way to navigate the energy transition.
This DCP program could be considered a version of a utility-led and funded VPP, but improved through utility planning to deliver increased value to the grid and to ratepayers, allowing for faster deployment of assets at a higher scale than previous VPP programs.
Opportunities for Vendors and Developers Under DCP
For vendors, developers, and OEMs the shift toward utility-led DER deployment presents exciting opportunities for growth and innovation. Under the DCP model, utilities transform into the largest wholesale buyers in the market, creating a competitive ecosystem of local vendors and OEMs while mitigating the boom-and-bust cycles of independent DER projects.
Utility-led DER programs create space for an expanded, competitive ecosystem of vendors, developers, and technologists that drives down deployment costs, pioneers new solutions, and increases the quality of installations based on utility specifications. For example, the utility could define overarching specifications around hosting capacity, communication protocols, and performance thresholds while empowering vendors to compete and innovate on hardware, software, and delivery models. This market structure enables specialization and diversity in product and service offerings.
Advancing Equity Through Distributed Capacity Procurement
From an equity standpoint, the DCP model enables proactive utility investment to seed DERs in underserved communities, turning buildings into resilience hubs. Creative DER compensation frameworks, such as hosting payments for siting assets on customers' properties, provide a pathway for residents to gain a direct financial stake in the clean energy economy. Further, assets provided based on its grid value at no cost to community members, plus a payment, unlock the financial benefits of ownership without the risk of maintaining depreciating assets.
Vendors can partner with utilities to develop skill training and local hiring programs focused on DER installation and maintenance, expanding access to clean energy jobs.
Benefits for Vendors Participating in Utility-led DER Programs
Vendors, developers, and OEMs who participate in utility-led DER programs like DCP gain significant advantages, including access to a stable and predictable market, streamlined permitting and construction, and enhanced Market penetration potential.
As DCP takes hold, forward-thinking vendors and developers can shape its evolution through active collaboration with utilities. Areas ripe for co-development between utilities and DER providers include:
- Standardized DER technical requirements and communication protocols
- Streamlined interconnection and permitting processes
- Cost-effective approaches to asset operations, maintenance, and performance assurance
- Integrating real-time DER telemetry with utility grid planning and operations platforms
- DER deployment models that maximize local job creation and community benefits
DCP: The Next Chapter for DERs and VPPs
The DCP model represents an exciting new chapter for DERs and VPPs, one in which utilities take a proactive leadership role as long-term owners and stewards of distributed grid infrastructure. For vendors and developers, this transition opens up much larger markets and provides a clear pathway for DERs to become an integrated, strategically-sited grid asset class.
With thoughtful collaboration between utilities and DER providers, DCP programs can become the driving force to achieve the scale and velocity of DER deployment needed for the next phase of the clean energy transition, building a more resilient grid for all.