States accelerate virtual power plant programs as grid demand climbs

Two major policy moves in 2026 — an executive order in Massachusetts and a regulatory decision in Minnesota — are drawing attention to virtual power plants as a practical tool for managing electricity grids under growing demand pressure.

What a virtual power plant actually does

A virtual power plant, or VPP, aggregates distributed resources — home and business batteries, factories that can dial back consumption on demand — under a central controller that can dispatch them to supply or reduce load on the grid. With a few commands, hundreds or thousands of nodes behave like a single generating asset, and resource owners receive compensation for their participation.

Industry analysts regard VPPs as a cheaper and cleaner alternative to natural gas peaker plants for meeting short-duration spikes in electricity demand. The concept is gaining traction at a time when grid operators across the country are contending with rising load driven by data centers, electrification of transportation, and industrial growth.

Massachusetts sets an ambitious 2035 target

On March 13, Gov. Maura Healey signed an executive order directing Massachusetts to develop 3.5 gigawatts of demand-management resources by 2035, a category that can include virtual power plants, electric vehicle charging management, energy efficiency, and demand response programs, according to Inside Climate News.

The scale of that target becomes clear with context: the entire six-state New England grid recorded a peak demand of 26.1 gigawatts in 2025, per Inside Climate News. California's VPP network — currently among the largest in the nation — generated a peak of approximately half a gigawatt last July.

The order calls for a September report cataloguing existing demand response and related programs, establishing a baseline before the state works toward the 2035 goal. Autumn Proudlove, managing director for policy and markets at the NC Clean Energy Technology Center at North Carolina State University, noted a broader trend underpinning the action.

Larry Chretien, executive director of the Green Energy Consumers Alliance, expressed cautious optimism about the Healey administration's approach of first auditing what already exists.

Minnesota approves utility-owned battery network — and sparks debate

On May 13, Minnesota utility regulators approved Xcel Energy's Capacity*Connect program, authorizing the deployment of 200 megawatts of neighborhood-scale batteries ranging from 1 to 3 megawatts each, according to Inside Climate News. The program is designed to place storage precisely where Xcel's grid needs it most.

The central controversy is ownership: Xcel, not consumers, would own and operate the batteries. An Xcel spokesperson stated the design is "different in that it is designed to prioritize the larger grid instead of first serving the single customer who owns the battery," adding that utility ownership ensures safe, reliable operation and maximizes benefits across the customer base by storing energy when prices and demand are lower.

Critics are unconvinced. John Farrell, co-director of the Institute for Local Self-Reliance, argued the Minnesota commission chose the wrong ownership model, contending that utility control of battery networks produces weaker cost-containment incentives than decentralized, consumer-owned alternatives.

National VPP capacity: a resource too large to ignore

A January 2025 report from Lawrence Berkeley National Laboratory counted roughly 180 VPP projects across the United States, with a combined potential capacity of 19 gigawatts — close to three-quarters of the New England grid's peak demand, according to Inside Climate News.

California led all states with 62 projects, followed by Colorado with 16 and Massachusetts with 15, per the Lawrence Berkeley data cited by Inside Climate News. The geographic spread suggests VPPs are no longer a regional experiment but a growing element of grid strategy nationwide.

Definitional gaps still cloud the sector

One persistent challenge is that the term "virtual power plant" lacks a universally accepted definition, and programs that analysts might classify as VPPs — such as Xcel's Capacity*Connect — are sometimes described without using the label at all. Regulators, utilities, and advocates continue to apply the concept differently depending on ownership structure, resource type, and control architecture.

For grid professionals, the definitional ambiguity matters because it affects how programs are measured, compared, and ultimately counted toward policy targets like Massachusetts' 3.5 GW goal. Clearer standards could help states and utilities benchmark progress against each other as adoption accelerates.