This blog was originally posted by the Smart Electric Power Alliance (SEPA).
By: Lakin Garth, Senior Director, Grid Strategy, SEPA, Janne Knieke, Analyst, Research & Industry Strategy, SEPA, and Autumn Proudlove, Managing Director, Policy & Markets, NCCETC
INTRODUCTION
Virtual power plants fueled by distributed energy resources (DERs) are increasingly important as we transition to a more resilient, flexible, and cost-effective grid. Continuing the robust state-level policy momentum in 2024, 2025 has already seen a swarm of regulatory advancements, legislative proposals, and utility initiatives that will shape the future of VPPs and DER aggregation.
This blog builds on our previous analysis – 50 States of Virtual Power Plants and Supporting Distributed Energy Resources: 2024 State Policy Snapshot – by highlighting significant policy actions in Q1 2025 and forecasting what lies ahead for the rest of the year.
Figure 1. Q1 2025 State and Utility Action on VPPs and Supporting DERs
Figure 2. Q1 2025 Legislative and Regulatory Actions on VPPs and Supporting DERs
Figure 3. Q1 2025 Virtual Power Plant Action, By Action Type
Q1 2025 UPDATES
As more states take action, this quarterly snapshot captures the most impactful developments shaping VPP growth, emerging compensation models, and utility program design.
Arizona
Docket No. E-01345A-22-0144 (Arizona Public Service - Virtual Power Plant Program)
In March, the Arizona Corporation Commission (ACC) approved the Arizona Public Service’s (APS) proposed Bring Your Own Device (BYOD) pilot. (Commission Staff recommended rejecting the pilot.) Under APS’s BYOD pilot, participants must agree to participate in 60 demand response events per year, with a duration of one to four hours per event. Events will be scheduled between 4 p.m. and 10 p.m. from May 1 to October 31, with a maximum of one event per day. Participating customers will be compensated with an annual $110/kW capacity payment based on the average kW performance delivered by their battery system during all demand response event hours called throughout the program season. The Commission issued an order on March 20, 2025, acknowledging the staff's concerns but approving the BYOD program as proposed.
California
CEC Docket No. 22-RENEW-01 (Demand Side Grid Support Program)
The California Energy Commission (CEC) issued a revised draft of the Demand Side Grid Support (DSGS) Program Guidelines in January and March, incorporating stakeholder feedback. Key updates include revised size thresholds and discharge limits for storage VPPs, clarified dual-participation rules, and new emergency triggers and test event protocols. A newly proposed Emergency Load Flex VPP option would expand eligible technologies and require monthly capacity commitments with performance-based payments. A planned CEC vote in March 2025 on the draft DSGS Guidelines was postponed to allow the CEC to review additional stakeholder input.
CAISO’s Demand and Distributed Energy Market Integration Initiative
In January, the California Independent System Operator (CAISO) launched a new policy initiative to integrate demand and distributed energy into its markets. The effort aims to enhance or develop participation models and market rules that support the representation of demand and DERs – independently or in aggregation – in the day-ahead and real-time markets. Guided by stakeholder priorities and internal analysis, a working group will explore competitive market participation and coordinated load forecast adjustments. An initial discussion paper identified six thematic areas: performance evaluation, proxy demand response model enhancements, reliability demand response, DER participation, expanded demand-side bidding, and improved demand flexibility optimization.
Colorado
Docket No. 24A-0547E (Xcel Energy - Distribution System Planning)
Xcel Energy proposed its 2025-2029 distribution system plan (DSP), which includes the installation of a distributed energy resource management system (DERMS) in two categories: aggregator DERMS (ADERMS), budgeted at $5 million, and grid DERMS (GDERMS). In connection with the DERMS investments, Xcel’s proposed plan includes a new VPP program, Prime Time VPP, that includes participation by utility and third-party aggregators. Xcel would pursue Prime Time VPP in cooperation with the City of Boulder, the University of Colorado Boulder, and the National Renewable Energy Laboratory.
Docket No. 25A-0061E (Xcel Energy - Virtual Power Plant Program)
In January 2025, Xcel Energy proposed a new Aggregator Virtual Power Plant (AVPP) program, which would offer DER aggregators performance-based compensation for capacity obligated to support system needs upon Xcel’s request. The five-year program budget is $78.5 million, designed to support 125 MW of enrollment. Eligible DERs include battery storage, smart thermostats, smart water heaters, smart heat pumps, and EV chargers. DERs are limited to 500 kW, and participating batteries must retain at least 20% of their charge after participation events. Events (up to 100 per year) may be called at any time. Performance is determined by comparing a customer's baseline load to its actual load during an event. Compensation reflects avoided costs, with initial values set at $134/kW for generation, $21/kW for distribution, and $69/kW for transmission. To participate, aggregators must pay an annual fee of $13.86/kW and control at least 100 kW of capacity.
Georgia
Docket No. 56002 (Georgia Power - Virtual Power Plant Program)
In January 2025, Georgia Power filed its proposed 2025 integrated resource plan (IRP), covering 2025 to 2044. The proposed IRP includes a new 50-MW customer-side solar-plus-storage pilot program for residential and small commercial customers. The pilot includes 25 MW for a customer-directed model (load curtailment with performance-based payments) and 25 MW for a utility-directed model (customers provide storage for continuous operation for an upfront incentive).
The customer-directed model provides an upfront incentive of $15/kW, with a performance incentive of $1.50/kWh for energy discharged during events. Low-to-moderate income (LMI) customers and commercial businesses in municipalities, universities, schools, and hospitals (MUSH) segments receive an upfront $45/kW incentive. The company-directed model provides an upfront incentive of $750/kW for standard customers and $1,000/kW for MUSH and LMI customers. (Customers with standalone storage may only participate in the customer-directed model.)
Hawaii
Docket No. 2019-0323 (Virtual Power Plant Program)
In December 2024, the Hawaii Public Utilities Commission (PUC) launched a new phase of a proceeding to review and evaluate modifications to the BYOD program. An order filed on March 21, 2025, adopted revisions to the BYOD tariff and renamed it BYOD+. It changed the aggregate cap on the program from being island-specific to a single statewide cap of 50 MW, split equally between LMI customers and non-LMI customers. It maintains the program at daily scheduled capacity load reductions for two hours, and maintains the device eligibility as battery energy storage paired with renewable energy generation.
The order increases the upfront incentive from $100 per kW (up to $500) to $400 per kW for non-LMI customers and $800 per kW for LMI customers. It removes the previous $5 per kW monthly capacity performance incentive, but increases the credit for controlled energy exports from the evening peak export rate under the Smart DER Tariff to the retail rate for exports during scheduled export time. It also increases the customer commitment period from three years to five years. These changes are set to take effect on May 1, 2025.
Michigan
Docket No. U-20147 (Distribution System Planning)
In January 2025, Michigan Public Service Commission Staff filed a proposal to standardize future distribution plan filings, primarily by requiring utilities to file plans triennially with five-year investment periods. The proposal calls for plans every three years with a five-year investment plan. Under the proposal, utilities must detail grid modernization efforts, including action on DERs, non-wires alternatives (NWAs), and electrification, along with current and future reliability metrics.
Maryland
Case No. 9778 (Virtual Power Plant Rules)
In January 2025, the Maryland Public Service Commission’s (PSC) Interconnection Workgroup filed a non-consensus report and recommendations. The report asserts that portions of Maryland’s 2024 Distributed Renewable Integration and Vehicle Electrification (DRIVE) Act and FERC Order 2222 (e.g., VPP implementation, vehicle-to-grid, DER registration processes, and protocols for metering or communication) are outside of the Workgroup’s directives. In February, the PSC initiated a new proceeding for the Workgroup to track activities and filings concerning the implementation of VPP and vehicle-to-grid services in Maryland. These developments support FERC Order 2222 (regarding VPPs) and DRIVE Act goals.
New York
Docket No. 24-E-0165 (Grid Flexibility Study)
In January, the New York Department of Public Service (DPS) completed a Grid Flexibility Study Phase 1 report, which found that New York has over 8 GW of statewide cost-effective,
achievable grid flexibility potential by 2040. The DPS found all modeled options cost-effective and could avoid nearly $3 billion annually in power system costs by 2040. In late March, the DPS filed the first iteration of its Grid of the Future Plan, which uses insights from the Grid Flexibility Study to guide the development of a more expansive distributed system implementation plan.
Oregon
Docket No. ADV 1691 (PacifiCorp - Virtual Power Plant Program)
In December 2024, Pacific Power proposed the Wattsmart Battery program, which would incentivize the installation of new batteries for residential and commercial customers. Customers will receive an enrollment payment of $150/kW per commitment year for up to four years, plus annual incentives of $15/kW during the commitment term and $50/kW for participating beyond the four-year commitment term. The incentive is capped at 70% of battery costs. Pacific Power may dispatch batteries without notice, but will not drain batteries below 10% capacity. The Oregon Public Utility Commission approved the proposal in February.
Docket No. UM 2362 (Portland General Electric - Distribution Planning System)
In December 2024, Portland General Electric (PGE) filed its 2024 DSP, outlining planned investments in traditional infrastructure, grid modernization, and VPP resources over the next two to four years. PGE’s proposed VPP investments will focus on flexible load, VPP solar-plus-storage, and distributed thermal, resulting in 1,021 MW/937 MW for the summer and winter, respectively, by 2029. The grid modernization investments, totaling $264.75 million, include grid management systems, integrated planning, sensing, measurement, automation, and telecommunications.
Texas
Docket No. 53911 (Virtual Power Plant Pilot)
In February, Texas Public Utility Commission Staff filed a recommendation to shift the Aggregate Distributed Energy Resource (ADER) pilot program development process from the ADER Task Force to an ERCOT stakeholder process. (This multi-phase pilot was approved in 2022 and launched in 2023.)
Virginia
H.B. 2346 - Passed House & Senate (Virtual Power Plant Rules)
H.B. 2346 requires Dominion Energy to propose, by December 1, a pilot program (subject to State Corporation Commission (SCC) approval) to evaluate demand optimization methods, including VPPs with up to 450 MW of aggregated DERs across multiple regions. The pilot must evaluate grid services during peak demand and include resources owned by utilities and non-utilities. Dominion must develop a tariff or variations of a tariff structure through which residential and non-residential customers may enroll, either directly or through an aggregator, by November 2026. The SCC would evaluate the pilot after its initial phase concludes by July 2028. H.B. 2346 also requires Dominion to propose a program incentivizing residential battery storage.
In March 2025, the Governor returned this bill with recommended amendments. The amendments remove the pilot program and direct the Commission to conduct a proceeding to evaluate and assess benefits, impacts, best practices, and implementation recommendations for utilities to establish VPP programs.
LOOKING AHEAD
Based on our review of VPP-related policy developments, we expect similar levels of policy activity for the remainder of 2025. Specifically, this section summarizes major VPP-related activities we anticipate in four states due either to the timeliness of these expected actions or to unique programmatic elements.
Connecticut
Program Update – In December 2024, the Public Utilities Regulatory Authority (PURA) revised the state’s Energy Storage Solutions program by replacing flat-fee penalties with proportional clawbacks based on DER underperformance during peak events. Underperforming participants will no longer face removal after two violations but may incur additional clawback fees. PURA may authorize fee waivers. By May 1, 2025, the program administrator must propose a shift to a performance-based incentive model, with payments tied to meeting passive dispatch performance milestones.
Illinois
Ameren Illinois
Pilot Program Proposal – In December 2024, the Illinois Commerce Commission (ICC) approved Ameren Illinois’ refiled 2024-2027 integrated grid plan, which includes a proposed VPP pilot program. Ameren will commence stakeholder workshops – likely beginning after May 1 -- to collaboratively develop a VPP program, including proposed compensation levels. If consensus is not reached within the 120-day engagement period, Ameren will submit a proposal for ICC review.
ComEd
Pilot Program Proposal – In December 2024, the ICC approved ComEd’s refiled 2024-2027 integrated grid plan, which includes proposed VPP programs. Commission Staff will host workshops addressing ComEd’s proposed VPP programs in 2025. Workshops will focus on customer eligibility, compensation frameworks, penalties for non-performance, and event durations and notice requirements. Workshops will commence on an expedited schedule, facilitating a tariff filing for the VPP programs by June 17.
Minnesota
Program Proposal – In comments supporting its 2024-2040 Upper Midwest Resource Plan, Xcel Energy proposed a Distributed Capacity Procurement (DCP) process – functionally a VPP program – in Minnesota to integrate DERs into its system planning. Depending on system needs, the program could procure from 400 MW to 1 GW (or more) of DERs. With a theoretical target of 400 MW of energy storage and 440 MW of solar, the DCP could launch in 9-12 months and deploy within 36 months. Under a joint settlement filed in October 2024, Xcel committed to filing a DCP proposal by October 2025.
North Carolina
Program Proposal – In November 2024, as part of its decision in Duke Energy’s Carolinas Resource Plan, the North Carolina Utilities Commission directed Duke Energy to work with stakeholders to develop a non-residential version of the utility’s existing PowerPair solar-plus-storage incentive program and to submit the proposed program for review by September 2025.
CONCLUSION
As the first quarter of 2025 draws to a close, the state policy landscape for VPPs and DERs continues to take shape, with new regulatory frameworks, pilot programs, and utility initiatives setting the stage for further growth. The diversity of approaches—from advanced distribution system planning in Oregon and Michigan to targeted incentive programs in Georgia and California—illustrates both the challenges and opportunities in scaling these resources.
Looking ahead, collaboration among stakeholders will be essential to refine and fine-tune program structures, enhance grid integration and benefits, and ensure that these programs deliver on their promise of affordability, reliability, and sustainability. With key regulatory decisions on the horizon and continued innovation in VPP design and compensation models, 2025 will continue to be a pivotal year in advancing the role of DERs in the clean energy transition.
CONTACT INFORMATION
SEPA partnered with the N.C. Clean Energy Technology Center (NCCETC) to develop a summary of state-level policy actions supporting VPPs and DERs in Q1 2025, and an outlook of further actions anticipated in 2025.
ADDITIONAL RESOURCES
RE+ Mid-Atlantic (Philadelphia, Pennsylvania; July 10-11)
SEPA Customer Programs Working Group