What Google’s virtual power plant in PJM says about the race for electricity

An agreement by Google to fund a 100-MW virtual power plant in the nation’s biggest regional market signals the emergence of distributed capacity as a valuable resource amid tightening power supplies, industry sources say.  

The tech giant announced in June that it would pay residential, commercial and industrial customers in the PJM Interconnection to participate in a three-year VPP operated by Voltus. 

The contract is unique because it holds Voltus responsible for Google’s capacity obligation — a vote of confidence by the hyperscaler that reflects new market realities, Voltus company officials told Utility Dive.

“This is a turning point — allowing markets to treat distributed capacity like any other capacity resource,” said Jon Wellinghoff, the chief regulatory officer of Voltus and a former Federal Energy Regulatory Commission chair. “Large loads, like data centers, are now contracting with distributed capacity and [distributed energy resource] providers for utility-scale BYOC, or bring-your-own-new-capacity.”

While regulators weigh market reforms, interconnection queues at PJM and other regional systems are years long.

Even with PJM’s record-high prices, demand for capacity exceeds supply, said Mary Yang, an energy lawyer and chief operating officer for the consulting firm 804 Advisory who has extensive experience with PJM and FERC.

“Today’s conditions require thinking about distributed capacity,” she said. 

Distributed capacity is faster and easier to integrate than traditional capacity resources, experts say. That’s why utilities, states, hyperscalers and others are exploring new business models to move distributed capacity to regional market-sized scale.

The power system still needs investments in transmission, centralized generation and storage to meet load growth and reduce the cost of electricity, said Pier LaFarge, CEO of Sparkfund, which is working with Xcel Minnesota on the utility’s Capacity*Connect distributed capacity pilot.

It also needs operational flexibility from large loads, especially from the data centers that are overwhelming system planners.

But “distributed capacity as a category of resource to meet system needs has arrived,” said LaFarge. Some utility leaders agree.

Done right, distributed capacity can unlock beneficial load growth, which increases grid utilization and “puts downward pressure on rates,” said Lon Huber, Xcel senior vice president, integrated system planning, and chief planning officer.

Utilities and system operators see benefits

The 100-MW capacity of Google’s VPP is trivial compared to PJM’s July 2 record peak load of 168.2 GW, but distributed resources writ large could meet as much as 20% of U.S. peak load needs by 2030, a 2025 Department of Energy study found.

Many utilities have rolled out their own VPPs in recent years to meet needs that include resource adequacy, reliability and resilience, transmission and distribution infrastructure relief and affordability, according to a 2024 RMI report. 

In the PJM region, the average residential solar-plus-storage system reduces customer peak period demand about 6 kW, while the average consumption in critical peak periods is about 3 kW, said Scott Vogt, a consultant and former vice president of strategy, energy policy and revenue initiatives with Commonwealth Edison.

That means “solar-plus-storage owners reduce their own capacity costs and the high capacity costs of other customers in PJM’s ComEd territory,” Vogt said. 

The economic value is clear, he added. 

“DER aggregators are reevaluating and restructuring their business models to make it easier for customers to understand the value proposition,” Vogt said.

Proposed changes to PJM’s market structure could also affect the value of distributed capacity. The Federal Energy Regulatory Commission recently rejected most of the grid operator’s large load interconnection plan, which would have placed a high risk of curtailment on customers that fail to bring new capacity.  

Meanwhile, power supplies remain tight, and utilities and others are trying out new ways to make the most of distributed resources. 

Some PJM states, including New Jersey and Pennsylvania, are also thinking about how to compensate customers for the value they can provide on the demand side, Yang told Utility Dive. But that would require the right state programs and tariff structures and might also need state or federal regulatory approval, she added.

Hyperscaler-funded VPPs raise questions

Questions about some hyperscaler-funded VPP programs show why more regulatory clarity may be needed.

In September, Pacific Gas & Electric Co. announced it was partnering with Google and Rewiring America to launch the Smart Home Assets for Reliability and Efficiency, or SHARE, program in the San Francisco Bay Area to “create additional capacity, support reliability and help put downward pressure on rates,” according to a PG&E press release.

The pilot program will enroll over 20,000 existing customer-owned distributed energy resources plus new battery-enabled heat pumps as a VPP to relieve system congestion, PG&E said. “The program will be fully funded by Google to support customer incentives, technology deployment, and program delivery,” it said.

But the pilot has prompted some to question why, if distributed resources are so valuable, PG&E hasn’t done more on its own to bring a VPP online.

Jigar Shah, founding advisory chair of Deploy Action and former head of the U.S. Department of Energy’s loan program under President Joe Biden, wrote in a post on LinkedIn that PG&E’s SHARE pilot is “not a success story.”

PG&E has “more behind-the-meter batteries than any utility in the country and has no [California Public Utilities Commission]-approved program to compensate them for the grid services they already provide,” he wrote.

PG&E spokesperson Paul Doherty said in an email to Utility Dive that the responsibility lies with California regulators, who need to create a methodology for customer compensation, allow DER to compete in wholesale energy markets and set performance standards. 

“The scaled program does not exist yet … and it is bigger than any single utility,” Doherty said.

“SHARE is not us waiting for perfect rules; it is us partnering with Google to prove a faster path,” he added. “With external funding, we moved from idea to contract in months, not years.” 

Aggregators see opportunity

In recent months, distributed resource providers and VPP aggregators have announced several notable deals extending their scale and reach.

Sunrun, Everyday Electric (formerly Renew Home) and Tesla announced an agreement to supply more than 16 GW of flexible energy capacity to utilities and hyperscalers.

Schneider Electric, Octopus Energy US and Uplight finalized a partnership to expand Uplight’s distributed resources portfolio to 20 GW in the next five years.

Branch Energy announced $33 million in funding to expand from Texas into PJM’s capacity market.

PG&E announced the SHARE program with Google and DER providers.

Sunrun agreed to supply Voltus with energy capacity from thousands of residential storage and solar systems in PJM and MISO to support Voltus’ AI hyperscaler agreements, and Voltus acquired battery project developer Brightfield.

Earlier this month, Voltus announced it had raised $225 million in Series D financing, with a target of 20 GW of distributed capacity by 2030. 

Voltus CEO Dana Guernsey compared the new “bring your own new capacity” contracts to the power purchase agreements that “revolutionized” utility-scale solar and wind development, enabling financing from investors and tech companies “with the largest balance sheets in the world.”

Hyperscalers are also choosing load flexibility, distributed capacity and VPP solutions in response to the public data center backlash, Guernsey told Utility Dive. Besides meeting large load capacity needs, “they return value to customers … and reduced bills for all electricity users,” she said.

Restoring customer trust in the infrastructure boom

Voltus resources are dispatched into energy, capacity and ancillary services markets as an everyday part of the modern power system, Guernsey said. 

But new and different commercial structures and partnerships are emerging because not many near-term solutions offer the same speed, certainty and customer benefits as distributed resources, she added.

Tom Hunt, CEO of commercial and industrial-scale battery provider Pivot Energy, said the business model is evolving with the market. The current trend toward consolidation means “the exact products and market mechanisms may not be certain for 10 years,” he said.

But the distributed capacity business models, markets, values and the competitive dynamics of providers are becoming clearer, said Sparkfund’s LaFarge. Regulators, utilities and other stakeholders are realizing distributed capacity and other forms of load flexibility can and should be proactively developed to expand system utilization and help preserve reliability and affordability, he said. 

“That will restore customer trust and create the social license needed to grow transmission and generation to serve the next hundred years of economic and geopolitical growth,” LaFarge added.

“Last year, data center owners thought they could bypass regulatory and supply chain delays by building off-grid,” LaFarge said. “Most hyperscalers now realize how shockingly more expensive it is than contracting for distributed capacity.”