Pathways to Commercial Liftoff: Virtual Power Plants SEPTEMBER | 2023 Neither the United States Government nor any agency thereof, nor any of their employees, nor any of their contractors, subcontractors or their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for any third party’s use or the results of such use of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof or its contractors or subcontractors. Comments The Department of Energy welcomes input and feedback on the contents of this Pathway to Commercial Liftoff Report. Please direct all inquiries and input to liftoff@hq.doe.gov. Input and feedback should not include business sensitive information, trade secrets, proprietary, or otherwise confidential information. Please note that input and feedback provided is subject to the Freedom of Information Act. Authors Jennifer Downing, Loan Programs Office (Lead) Nicholas Johnson, Office of Policy Mailinh McNicholas, Office of Technology Transitions David Nemtzow, Loan Programs Office Rima Oueid, Office of Technology Transitions Joseph Paladino, Office of Electricity Elizabeth Bellis Wolfe, Loan Programs Office Acknowledgements Cross-cutting Department of Energy leadership for the Pathways to Commercial Liftoff effort: Loan Programs Office: Jigar Shah, Jonah Wagner Office of Clean Energy Demonstrations: Kelly Cummins, Melissa Klembara Undersecretary for Infrastructure: David Crane Office of Technology Transitions: Vanessa Chan, Lucia Tian Office of Policy: Neelesh Nerurkar Department of Energy advisory and support for the VPP Liftoff report: Office of Electricity: Gene Rodrigues Office of Energy Efficiency and Renewable Energy: Alejandro Moreno, Rebecca Albertus-Jones, Carolyn Snyder, Paul Spitsen, Ram Narayanamurthy, Julia Miller, Gabriel Klein, Garrett Nilsen, Cecilia Johnson Office of State and Local Energy Programs: Henry McKoy, Chris Castro, Michael Forrester Office of Cyber Security, Energy Security, and Emergency Response: Puesh Kumar, Elaine Ulrich, Christopher Sweeney Office of Economic Impact and Diversity: Shalanda Baker, Tony Reames, Malcolm Miller, Isaac Lertola Loan Programs Office: Sean Sevilla, Michael Schweitzer, Amy Peterson, Sandhya Jetty Office of Policy: Carla Frisch, Noel Crisostomo, John Agan Grid Deployment Office: Maria Robinson Analytical support from The Brattle Group: Ryan Hledik, Kate Peters Table of Contents Purpose of Liftoff reports 1 Objectives and Scope of this Liftoff report on Virtual Power Plants 1 Executive Summary 2 Chapter One: Introduction 6 1.i. Virtual power plant definition 6 1.ii. Distributed energy resource definition 6 1.iii. VPP value proposition 8 Chapter Two: Current State Technologies and Market 13 2.i. DER adoption 13 2.ii. VPP operations 16 2.iii. VPP participation in electricity markets 19 2.iv. VPP deployment by state 21 2.v. VPP business model economics 23 2.vi. An inflection point for VPPs 31 Chapter Three: Pathway to VPP Liftoff 32 3.i. VPP potential in 2030 32 3.ii. Pathway to VPP liftoff 33 3.iii. Broader implications 35 Chapter Four: Challenges to Liftoff and Potential Solutions 38 4.i. Expand DER adoption with equitable benefits 38 4.ii. Simplify VPP enrollment 41 4.iii. Increase standardization in VPP operations 43 4.iv. Integrate into utility planning and incentives 48 4.v. Integrate into wholesale markets 51 Chapter Five: Metrics to Track Progress 53 Appendix 56 I. Key concepts and terms in this report 56 II. Illustrative 24-hour electrical load curve in 2024, 2030, 2050 57 III. FERC definition of DER and DER Aggregator 57 IV. VPP Evolution 58 V. Variation across VPPs 59 VI. Enabling grid software and hardware technologies for VPPs 60 VII. Potential grid services 63 VIII. Overview of VPP Business model cost and revenue drivers 65 IX. Cost and revenue detail for example smart thermostat demand response VPP 66 X. 2030 flexible demand capacity and grid savings potential detail 67 XI. Modeling tools available from select DOE-partnered national laboratories 69 XII. Recommendations for