U.S. Virtual Power Plant Market Size, Share & Industry Analysis, By Technology (Demand Response, Distributed Generation, and Mixed Asset), By Asset Type (Solar, Energy Storage, Wind, EV Charging Stations & Vehicle to Home (V2H), and Others), By End-user (Residential, Commercial, and Industrial), and Country Forecast, 2023-2030

The U.S. virtual power plant market size was worth USD 493.17 million in 2022 and is projected to grow at a CAGR of 29.19% during the forecast period. 

A virtual power plant (VPP) is a network of small energy production or storage devices, such as solar panels and batteries, combined with the power grid. With the consent of the participants, their energy can be used by the utilities during periods of high demand or reserved for later use. Equipment owners will be compensated for their participation. With an increasing number of renewable energy sources, such as solar and wind, the U.S. power grid faces challenges related to intermittent power generation. VPPs help integrate these renewable sources by aggregating diverse energy assets and providing a more reliable and flexible power supply; with an increase in energy sources and development in the energy sector, the VPP market is expected to grow. Additionally, VPPs provide rewards and compensation to participants without energy generation/storage systems for using less energy during energy-saving events.

A virtual power plant (VPP) is a cutting-edge energy concept that forces advanced technology to integrate and manage a network of decentralized energy resources, such as solar panels, battery storage systems, electric vehicles, and demand response programs. These resources are interconnected through digital platforms and smart controls, allowing them to be arranged and optimized as a unified, flexible power source. The VPP can respond to grid demands and supply electricity during peak usage periods, stabilize the grid, and support the integration of renewable energy sources. By aggregating and coordinating these distributed resources, a VPP enhances grid reliability, reduces stress on traditional power generation, and contributes to a more sustainable and resilient energy system.

The energy sector experienced a contraction due to production challenges, delays in project implementations and disruptions in the supply chain for essential components. Economic uncertainties and reduced capital investments during the COVID-19 pandemic also hampered the expansion and deployment of the virtual power plant industry. The overall slowdown in economic activities impeded the momentum of virtual power plant projects, affecting market growth. After the pandemic, the industry has underscored the importance of adaptive technologies, strengthening the position of virtual power plants in the evolving energy landscape.

U.S. Virtual Power Plant Market Trends

Increasing Demand for Renewable Power Generation to Fuel Market Growth

Increasing awareness of the benefits of renewable energy has fueled demand for renewable energy in recent years. In addition, government initiatives supporting the development of renewable energy sources encourage renewable energy generation, thereby increasing demand for virtual power plants. According to the US Department of Energy, wind and solar energy will account for more than 50%-60% of the generating capacity of the US electric grid by 2022.

The U.S. claims a wealth of natural resources, including abundant reserves of renewable energy sources that can be found across all of North America. These renewable resources are plentiful and surpass the nation's annual electricity requirements by a factor of 100. It has also been forecast that renewable energy capacity will grow by more than 50% between 2019 and 2024, mainly from solar power. In addition, supporting initiatives to achieve green energy goals and reduce greenhouse gas emissions are being implemented by various governments.

Increasing focus on renewable energy generation and growing investments in renewable energy are driving the growth of the VPP market. Renewable energy is at the heart of the positive trend. However, costs have risen recently; clean technologies such as wind and solar energy are affordable and safe options for power generation in many countries, taking into account extraordinarily high coal and gas prices in 2022. Renewable energies, grids, and storage now account for more than 80% of all investments in the energy sector. The highest clean energy investment level in 2021 is USD 215 billion in the U.S.

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U.S. Virtual Power Plant Market Growth Factors

Increasing Shift toward Distributed Generation to Support Market Dynamics

The increasing shift toward distributed generation is due to evolving market dynamics, where decentralization and consumer empowerment are reshaping the energy landscape. Driven by advancements in renewable technologies, concerns about climate change, and a desire for energy resilience, distributed generation allows individuals and businesses to generate their electricity, reducing dependence on centralized power sources. This shift promotes environmental sustainability, enhances grid reliability, and fosters energy independence while also challenging traditional utility models and fostering greater competition in the energy market.

The increasing need for grid stability and flexibility is driving the adoption of virtual power plants in the U.S. With the growing penetration of intermittent renewable energy sources. Grid operators face challenges in maintaining grid stability and ensuring a reliable power supply. VPP offers a solution by enabling the efficient management and coordination of aggregation of distributed energy resources. They can balance supply and demand in real-time, provide ancillary services to support grid stability and optimize the utilization of renewable resources. As a result, VPPs are increasingly viewed as a valuable asset for grid operators and utilities, contributing to the market's expansion.

For instance, The IEA predicts that by 2040, installed grid-scale battery storage capacity could reach 34 GW, 14 GW, 61 GW, and 48 GW in the U.S., EU, India, and China, respectively. With the proliferation of V2G (Vehicle-to-Grid) and home battery storage, VPPs and DERs have a bright future.

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The U.S. consumed 4.05 trillion kWh of electricity in the year 2022, and in the year 2021, they consumed around 3.90 trillion kWh of electricity.

RESTRAINING FACTORS

Inadequate Infrastructure and High Costs to Hamper Market Growth

The infrastructure required to build a virtual power plant is equipped with advanced communication systems, such as an Energy Management System (EMS) that allows for the monitoring, management, and control of the various energy devices. These systems also enable data transmission for VPP decision-making for various energy systems.

VPP systems require tools with artificial intelligence coupled with machine learning and significant data capabilities to manage, monitor, collect, and measure the reliability and quality of the data for large amounts of data collected from various measurement devices to ensure VPP platforms. Integrating advanced tools and techniques into a VPP requires high costs and a highly skilled workforce. As a result, insufficient infrastructure and high costs associated with advanced technologies are expected to slow down the U.S. virtual power plant market growth over the forecast period.

The integration of distributed energy resources (DERs) into VPP requires a robust and reliable communication and data management infrastructure. However, many countries lack the necessary infrastructure to support seamless communication and data exchange between DERs, the VPP platform, and the grid. This can limit the scalability and effectiveness of VPP deployments, particularly in areas with outdated or underdeveloped grid infrastructure.

Investments in grid modernization and infrastructure upgrades are crucial to support the integration of VPPs effectively. Policy frameworks that can be streamlined and provide clarity and stability to encourage investments in VPP projects. Moreover, continued research and development efforts to drive down costs and improve technology performance can make VPPs more economically viable.

U.S. Virtual Power Plant Market Segmentation Analysis

By Technology Analysis

Based on technology, the market is segmented into demand response, distributed generation, and mixed asset.

The demand response segment held the largest U.S. virtual power plant market share in 2022. Demand Response technology provides a high level of flexibility to grid operators. Reducing demand during peak periods helps avoid grid overload, mitigates the risk of blackouts, and improves grid stability. The ability to dynamically manage demand makes it an attractive solution for VPP. The cost-saving potential and financial incentives provided to consumers encourage the widespread adoption of demand response technology.

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By Asset Type Analysis

Based on asset type, the market is divided into solar, energy storage, wind, EV charging stations & vehicle to home (V2H), and others.

The solar segment dominated the market in 2022. In the electric demand and consumption, solar panels are widely used for residential, commercial, and industrial applications such as power outages. According to the Department of Energy (DoE), in 2022, solar PV represented approximately 46% of new U.S. electric generation capacity; solar still represented only 9.0% of net summer capacity and 4.7% of annual generation in 2022. Solar PV systems are often deployed as distributed generation resources, producing electricity at or near the point of consumption. Distributed solar sources can be interconnected within VPPs, allowing their aggregated output to contribute to grid stability and reliability. The scattered nature of solar assets aligns with the VPP concept of aggregating and managing decentralized energy resources.

By End-user Analysis

Based on end-user, the market is segmented into residential, commercial, and industrial.

The residential segment dominates the market owing to the significant demand for electricity in residential areas. According to the U.S. Energy Information Administration (EIA), residential solar power installations rose by 34% from 2.9 GW in 2020 to 3.9 GW in 2021. With the increase in the demand for power and storage in households, the virtual power plant is expected to grow in residential areas.

Residential offers significant potential for demand response. By encouraging homeowners to adjust their energy consumption during peak periods, VPP can effectively manage and balance electricity demand using smart meters. Residential customers can shift their usage patterns, reduce energy consumption, or even contribute to the grid through DERs such as rooftop solar panels or residential energy storage systems. The flexibility of residential end-use makes it an attractive option for VPP operators.

By States Analysis

By states, the market has been analyzed across California, Illinois, Massachusetts, New York, North Carolina, Texas, Indiana, Maryland, Virginia, New Jersey, and the rest of the U.S.

California is the leading state and has expanded in the past few years due to increasing funding from a series of state laws and regulatory directives enacted by the state government to prevent summer power shortages.  Moreover, it leads VPP activity with its resource adequacy, top residential PV market, and battery attachment rates, making it favorable for expansion. According to the National Renewable Energy Laboratory of U.S. 2023, California has 25% of all utility VPPs, 41% of VPPs with energy storage, and 61% with electric vehicles (EVs). In July 2023, The California Energy Commission (CEC) approved a new statewide VPP program to tap into thousands of distributed solar and standalone batteries at homes and businesses throughout the state to meet the state’s increasing electricity needs.

New York is the second leading state with over 12% market share. The market growth is attributed to DER (Distributed Energy Resources) customer programs and capacity procurements. Moreover, the New York Independent System Operator is known to be a leader in DER integration. For instance, in April 2023, Logical Buildings, a New Jersey-based company specializing in smart building software, raised USD 110 million to establish a new VPP project for residential buildings in New York City and neighboring New Jersey.

Among other leading markets for VPPs is Texas, after California and New York in the U.S. For instance, in September 2023, the Public Utility Commission of Texas (PUCT) approved Tesla for launching two VPPs for its Powerwall home energy storage system customers in Texas. The first VPP is a distributed energy resource (ADER) project that will provide dispatchable power for peak demand loads on the state’s electricity grid in Houston and Dallas.

List of Key Companies in U.S. Virtual Power Plant Market

In terms of the competitive landscape, the U.S. market depicts the presence of established and emerging key players in the virtual power plant. Companies are continuously investing in research and development. The Portland General Electric Company (PGE) announced a pilot initiative aimed at encouraging the setup and linking of 525 energy storage batteries in residential areas, creating a 4 MW VPP. These decentralized units can function autonomously or be utilized in tandem to contribute power to the grid, enhancing flexibility in line with the utility's strategic objectives.

Some of the other companies with a considerable presence in the market include Tesla, Honeywell, GE, Enel X, ABB, and Generac Power System Inc.

LIST OF KEY COMPANIES PROFILED:

• ABB (Switzerland)


• Siemens (Germany)


• General Electric (U.S.)


• AGL Energy (Australia)


• Enel X (U.S.)


• Tesla (U.S.)


• IBM (U.S.)


• Hitachi, Ltd. (Japan)


• AutoGrid Systems, Inc. (U.S.)


• Generac Power Systems Inc. (U.S.)


• Ohm Connect (U.S.)


• Honeywell (U.S.)


• BC Hydro (Canada)

KEY INDUSTRY DEVELOPMENTS:

• June 2023: AutoGrid has announced a partnership with Willdan aimed at expediting the adoption of heat pump water heaters as a means to reduce carbon emissions in buildings by replacing gas-fired water heaters. This collaboration will utilize AutoGrid's VPP platform to introduce significant levels of adaptable grid capacity, initially commencing within the CAISO energy market.


• August 2022: Tesla and PG&E are in the process of constructing California's most extensive VPP. Following an invitation extended to approximately 25,000 PG&E customers who own Powerwall units, the two companies are embarking on the creation of what could be considered one of the largest distributed battery systems globally.


• July 2020: Siemens is expanding the scope of its VPP to include industrial sectors, as evidenced by its recent contract with Sinebrychoff, a Finnish brewery under the Carlsberg Group. Siemens has innovated a distinctive business framework tailored to elevate energy optimization for Sinebrychoff. Central to this initiative, which is being deployed at the Sinebrychoff facility in the extended Helsinki region, is the integration of a VPP and cutting-edge energy storage advancements. This endeavor is further bolstered by financial solutions, establishing a pioneering model of energy adaptability within an industrial setting. 

REPORT COVERAGE

The U.S. virtual power plant market research report provides a detailed analysis of the market. It focuses on key aspects such as an overview of the technological advancements, the development of the VPP industry in the U.S., and analysis. Additionally, it includes information about new product launches, key industry developments such as mergers, partnerships, acquisitions and the impact of COVID-19 on the market. Besides this, the report also offers insights into the market trends and highlights key industry dynamics. In addition to the aforementioned factors, it encompasses several factors that have contributed to the growth of the market over recent years.

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