POLICY BRIEF

Smart Regulatory Frameworks to

Accelerate Smart Energy Solutions:
Policies to Scale VPPs
By Sruthi Davuluri
Head of Policy and Market Development

Published December 2023

Executive Summary
The U.S. electricity grid has reached an inflection point.
As more states and utilities set climate targets and the
energy landscape evolves away from fossil fuel sources
toward renewables, it will be even more important—and
challenging—to deliver affordable and reliable electricity
across all customer classes. Distributed energy resources
(DERs) are shifting the way we generate, distribute, and consume
electrical power. Responding to growing demand and preventing
future blackouts requires a modern approach that harnesses DERs
to enhance grid resiliency and empower energy consumers to
actively shape consumption.

Virtual power plants (VPPs) have emerged as the most promising

solution to this complex challenge, acting as the primary vehicle for
aggregating and optimizing diverse DERs to fortify grid reliability and efficiency.

Achieving the advanced market structure required to accommodate and accelerate VPP
deployments over the next five to 10 years requires policy action today. The evolution of electricity
markets to incorporate VPPs requires hands-on regulatory oversight at the federal, state, and local
levels as well as the cooperation of regional balancing authorities like independent system operators
(ISO) and regional transmission organizations (RTOs).

This policy brief outlines four key recommendations for accelerating the deployment of VPPs across
the United States.

Key Recommendations
1. Compensate VPPs appropriately.

Solution: Deploy time-varying tariffs to compensate DERs for the full value they provide.

2. Incorporate VPPs into utility planning processes.

Solution: Leverage integrated distribution system planning to identify forecasted

congestion on hosting capacity maps and plan for non-wires alternatives (NWA)
opportunities through the next decade.

3. Promote open standards and open access to APIs.

Solution: Use open standards and provide open access to application programming
interfaces (APIs) to accelerate VPP growth by avoiding vendor lock-in and promoting
customer choice.

4. Improve integration of VPPs into wholesale markets.

Solution: Unshackle VPPs f rom onerous ISO requirements to prevent impending

capacity shortfalls.
Introduction
With the rapid electrification of transportation, buildings, and industrial sectors, critical demand-
side resources cannot be left unmanaged. The combination of aging infrastructure (including fossil
fuel peaker plants and transmission and distribution lines), along with more frequent climate-driven
extreme weather events, requires a new approach to keeping the lights on in the most sustainable
way possible. VPPs are already meeting the growing need for better energy orchestration and
flexible capacity. Successful VPP deployments in many states are providing a model of what is
now possible due to advances in machine learning and the growing role of prosumers—energy
consumers who also produce energy—as a cleaner and less costly solution for meeting the grid’s
resource adequacy needs.

VPPs have received considerable attention in 2023 with major reports such as the U.S. Department
of Energy (DOE) Pathway to Liftoff 1 and The Brattle Group Value of VPP Study.2 RMI’s Virtual Power
Plant Partnership (VP3) Coalition was also created to facilitate industry-wide coalition building.
These developments have increased awareness of the value of VPPs. Looking forward to 2024, strong
regulatory intervention focused on monetization pathways for DER aggregations is necessary to
reach the 80-160 GW VPP adoption target by 2030 called out by the DOE.

What is a VPP?
AutoGrid provides the market’s leading virtual power plant (VPP) services, defined here:

A VPP is an aggregated network of energy assets that can be remotely

operated to balance the supply and demand of electricity on the grid.
A VPP combines devices that store, generate, and shift electricity to
help meet peak demand, facilitate load balancing, and support targeted
dispatch to prevent distribution congestion.

VPPs provide reliability services that are cleaner and less costly than traditional fossil fuel power
plants. Recently, there has been a proliferation of distributed energy resources (DERs) that range
from behind-the-meter rooftop solar PV, batteries and increasingly, electric vehicle charging
systems. These and other devices, including AC units and smart thermostats, introduce more
demand flexibility at the distribution level. DER adoption trends, more frequent outages, and
increased reliance upon intermittent renewable energy penetration have made VPPs the
backbone of a decarbonized grid. VPPs not only help improve air quality and reduce greenhouse
gas (GHG) emissions by replacing peaker plants—they also save ratepayers money while boosting
system reliability.

1
The Pathway to: Virtual Power Plant Commercial Liftoft, Department of Energy, https://liftoff.energy.gov/vpp/.
2
Real Reliability: The Value of Virtual Power, Brattle, https://www.brattle.com/real-reliability/.
Why VPPs?
The full value proposition offered by VPPs was categorized in the DOE LPO’s Liftoff Report, as
depicted below (Figure 1).

Figure 1. Key value propositions of VPPs. (Image credit: Department of Energy)

VPPs can help address some of the grid’s greatest challenges, including:

Reliability

Peak electricity demand is expected to grow at an unprecedented pace over the next
several decades (Figure 2). Energy regulators across the country are concerned about
system reliability in both summer and winter. Many states and regions that were built
for a summer peaking system are not prepared for upcoming winter peak events
that could lead to outages similar to those that occurred in Texas in 2021. Additionally,
regional markets with decarbonization goals struggle to maintain reliability as
renewable energy generation ramps up. VPPs provide solutions to these reliability
challenges at a lower cost and carbon footprint than incumbent fossil fuel power plants.

Figure 2. U.S. system peak demand, 1995-2050. (Image credit: Brattle)

Load Balancing

Higher renewable energy penetration leads to more intermittency challenges, mid-

day surpluses (known as the belly of the duck curve), and increases the need for fast-
responding frequency regulation services.

GHG Reduction

The fossil fuel peaker plants traditionally used to balance loads and renewable
generation are disproportionately located near lower-to-middle income (LMI)
communities, which greatly impacts air quality in nearby neighborhoods.3 These peaker
plants are often only used during the top 250 peak hours of the year. By switching
to VPPs, we can retire these dirty, expensive peaker plants across the country while
leveraging DERs that have already been paid for.

Cost Reduction

The Brattle Group’s VPP Study did a side-by-side analysis comparing how a natural gas
plant, a utility-scale energy storage system, and a VPP provide peak capacity. The results
demonstrate that VPPs are a much cheaper option for providing peak capacity. These
DER prosumer assets are already being deployed across the nation. If we do not take
full advantage of them by aggregating them into VPPs, their potential value to grid
networks will never be realized.

Barriers to VPP Deployments

While the DOE has demonstrated the importance of VPPs, and there are many industry players
collaborating to push VPPs, deployments have been slower than necessary. There are many barriers
for VPP deployments, including but not limited to:

● Lack of compensation for the reliability services and deferred or avoided infrastructure costs
that VPPs provide.

● A historical utility electricity planning process designed for centralized resources such as
nuclear power plants and more recently utility-scale solar farms, not decentralized DERs that
encompass BTM supply, loads, and energy storage.

● Lack of common communication standards for various DER types, sometimes leading to
vendor lockouts.

● Uneven integration of DERs into grid networks due to delays in many regions, despite
the Federal Energy Regulatory Commission’s (FERC) Order 2222, which allows mixed DER
aggregations as small as 100kW to access wholesale transmission level markets.

3
Energy Storage Peaker Plant Replacement Project, Puget Sound Energy, https://www.psehealthyenergy.org/
our-work/energy-storage-peaker-plant-replacement-project/.
Recommendation #1: Compensate VPPs
Appropriately
High-Level Takeaway: State-wide alignment is needed to ensure that VPPs are compensated for
the full value stack that they provide.

VPPs can provide many valuable grid services, including:

● Peak load capacity (e.g. dispatch during the top 250 peak consumption hours).

● Daily load shifting to off-peak hours.

● BTM solar + storage system co-optimization.

● Targeted dispatch to avoid major and costly infrastructure investments.

The ideal VPP configuration can vary by geography. For example, places like Hawaii, California, and
Australia are facing curtailment issues in the middle of the day due to high solar PV penetration, and
may shift EV charging load to mid-day hours. Meanwhile, utilities on the East Coast—not only in New
England but even in the Southeast—are facing high winter peak loads that they did not have to plan
for a decade ago. Climate change not only increases summer heat waves but also winter cold snaps.

The Brattle Group recently performed a cost-benefit analysis comparing a natural gas plant, utility-
scale storage, and a VPP to meet resource adequacy needs. Their report quantifies the total value
stack that VPPs provide, ranging from emission reductions, avoided T&D costs, and resiliency values.
However, not all of these value stack components can be realized in the market today. In other
words, the market structure is not designed to compensate VPPs for avoided T&D infrastructure
costs, emission reductions, and additional resiliency value as depicted below (Figure 3).

Figure 3. A comparison of Gas vs. Battery vs. VPP resource adequacy. (Image credit: Brattle)
Because VPPs are made up of individual DERs, tariff design for individual DERs is also critical for VPP
compensation. There have been a lot of recent discussions around Net Energy Metering (NEM) and
export tariffs for rooftop solar PV, for example. With more DERs coming online, the way DER exports
are compensated will be an increasingly common, and perhaps perplexing, question for regulators.

The value that DER exports contribute to the grid varies by time of day, season, and location.
DERs should be compensated to reflect these variations. Inefficient retail rates shift costs from
participating customers (early adopters who can afford rooftop solar) to other ratepayers without
DERs. States such as California, New York, and Illinois are demonstrating leadership in quantifying
the value of DERs and highlighting that the inherent value of DER exports varies by several time
scales. AutoGrid’s recommendation is that each state and jurisdiction consider the long-term
impacts of inefficient export tariffs, and learn other rate design iterations to replicate successes from
other geographies and avoid other state’s mistakes when designing EV and BTM energy storage
tariffs in the future.

Advanced rate design should better reflect the hourly cost and emissions intensity of electricity,
as all jurisdictions will experience increased DER deployments. As stated in the DOE Liftoff report,
“Advanced rates, such as time-varying rates, have the potential to help balance supply and demand
and can create energy arbitrage opportunities for some types of VPPs.” Over time, a high number of
DERs may create new peak times to manage called “timer peaks.”

Why does this matter?

DERs can be expensive, and the way utilities design DER export tariffs impacts their payback
period for end customers. Ideally, tariffs will send appropriate price signals to VPPs so they provide
grid services at the correct time and then get compensated adequately for their provision of
reliability benefits.

When VPPs reduce peak demand, this helps reduce costs across all energy system stakeholders:
DER asset owners, distribution companies, and transmission grid operators. These savings must be
passed down to all ratepayers.

Without sending appropriate price signals to VPPs, we cannot expect VPPs to scale up and reduce
future T&D costs. The bottom line: If VPPs are not adequately compensated for their contributions to
grid balancing, they will never reach their full potential.

AutoGrid Recommendations on DER Compensation

 Create Dynamic Hourly Tariffs for DERs. A component-specific breakdown improves
transparency around DER economics. In other words, a user-friendly hourly breakdown
of avoided costs sends a much better price signal than a flat 15 cent/kWh tariff.
Inefficient DER tariffs can shift costs to customers without DERs, which can have an
adverse impact on local communities, introducing unwanted inequities into the clean
energy transition.

Compensate BTM Batteries on a $/kWh Basis. Today, BTM batteries are often
compensated as a DR resource. In recent years, it has been challenging to compensate
BTM Batteries through existing Demand Response programs because BTM Batteries
do not have an appropriate historic baseline. In contrast, the Demand Side Grid Support
(DSGS) program4 in California compensates BTM Batteries for their standby capacity
and energy exported on a per $/kWh basis, which allows VPP providers to dispatch BTM
batteries during the optimal times for the grid.

Avoid Incentive Payment Cliffs. Rapid shifts in incentives can have a negative impact
on DER Adoption and hurt DER device manufacturers. For example, transitioning from
one DER export tariff to a very different one the following year will have great impacts
on the industry, such as the transition from NEM 2 to NEM 3 in California. Smooth
transitions between incentives or retail tariffs are preferred.

Deploy EV Time-of-Use Tariffs. We must take the lessons learned from past rooftop
solar PV programs and avoid the same mistakes when developing current tariffs for EVs
and vehicle-to-grid (V2G) use cases. As we electrify the transportation sector, every state
and utility should roll out EV Time of Use (TOU) tariffs, improve consumer awareness
around EV charging tariffs, and consider a V2G pilot program in the coming years.5
EV TOU rates, coupled with an EV management software solution, is the best way to
prevent congestion driven by EV charging and timer peaks.

4
Additional details on the DSGS program can be found here.
5
More information on TOU rates can be found here.
CASE STUDY

New York Value of Distributed Energy Resources (NY VDER)

The NY VDER Calculator compensates energy generated from DERs with a clear and comprehensive
user interface. In contrast to a simple NEM rate, an hourly value stream captures multiple
components of the full value stack, clearly quantifying the hourly and locational value of a DER. Thus,
when a new solar + storage project comes online, developers will have long-term visibility into the
value potential of the project and have clear signals as to how to operate the assets.

The VDER value stack includes multiple components summarized below. Not only does the value
stack incorporate the day-ahead wholesale energy rate from NYISO, but it also compensates DERs
for capacity value, environmental benefits, and locational-dependent grid benefits, along with
other components depicted below (Figure 4). Therefore, a solar + storage project located in a more
congested area will have higher incentive to dispatch during peak periods than the same project
located in a more rural or isolated location. Similar constructs will be very valuable for other DER
projects such as electric fleets to forecast the value potential looking ahead.

Figure 4. The NY VDER value stack. (Image credit: NYSERDA)

Recommendation #2: Incorporate VPPs into
Utility Planning Processes
High-Level Takeaway: Utility planning processes have been fragmented and not updated to
align with recent trends in the clean energy transition. NWAs are a key opportunity for DERs
and VPPs to play a larger role in reducing grid modernization and T&D upgrade costs.

Electricity markets in the United States were designed for a unidirectional relationship between
power providers and energy consumers. Electricity planning revolved around a centralized system
where electricity flows one way from power plants to end consumers.

Historically, transmission system planning, distribution system planning, energy efficiency budgets,
supply procurement, and retail rate design were all conducted by separate teams at a single utility
with its own processes. With the rise of DERs and now VPPs, these processes are all interrelated and
must be addressed with a more holistic and comprehensive approach.

Why does this matter?

More BTM resources are coming online every year. Rooftop solar PV adoption trends are just
the beginning. Some utilities are struggling to gain visibility into the distribution system due to
increased DER adoption. A fully integrated planning process will help address these issues.

Among the two key challenges that the distribution system is facing are:

Aging infrastructure: This is true for both transmission and distribution systems.
Utility grid networks have been implicated in wildfires in California and elsewhere. Grid
modernization is underway, but takes time.

Power quality and reliability: From natural disasters to extreme weather to cyber
attacks, electricity networks are increasingly challenged in maintaining reliability at a
time when the entire economy is dependent on power grids. The most cost-effective
and quickest way to resolve this issue is greater coordination with DERs including load
flexibility in the form of VPPs.

Distribution congestion will be a growing problem with the rise of EV adoption. When designed
strategically, VPPs provide significant benefits to avoid or defer T&D infrastructure costs. This value-
add cannot go unnoticed. Grid operators must send VPPs proper price signals for where avoided
infrastructure costs are most pertinent, then compensate VPPs for the cost savings. This is known
as Non-Wires Alternatives (NWAs). NWAs can be thought of as a means to avoid infrastructure
investments or a solution that defers infrastructure investments for several years. The utilities
can then perform strategic infrastructure upgrades, such as investing in substations with limited
headroom, rather than making reactive and more costly changes.
Today, there is a lack of transparency on the location of potential NWAs, limiting savings for utility
customers. With effective DER management strategies, utilities can maximize value from existing
assets. Think of unmanaged DERs as underutilized, stranded assets at the distribution level. VPP
providers need more visibility into exactly where on the distribution grid a VPP would be most
valuable to the utility. Utilities should share intelligence regarding distribution-level congestion (or
planned distribution congestion) with VPP providers so the latter party can plan ahead. VPPs are
a cost effective solution—or at least temporary solution—and require advanced notice if used to
implement a NWA. When VPPs do help alleviate distribution congestion, they should be paid for
their services.

AutoGrid Recommendations on Utility Planning

Align Integrated Resource Planning (IRP) with Distribution System Planning. Rather than
approaching these previously siloed planning efforts separately with different utility teams,
these processes should become one in the same. For example, collaboration between IRP team,
distribution system planning and those with more granular DER adoption forecasts under various
scenarios will yield significant benefits.

As noted in the DOE Liftoff report, “Utilities that have not yet integrated VPPs into grid operations
can consider proactive measures—e.g., distribution system mapping, load forecasting, customer
incentive design—to begin deploying VPPs that can grow as DER adoption accelerates.” State
legislators could consider mandating integrated distribution system planning. In addition, granular
DER adoption and load forecasting should be incorporated into these integrated distribution system
plans for better results.

Implement Performance Based Ratemaking (PBR). Already common in Europe and implemented
in a few states in the U.S., PBR provides incentives for utilities to encourage peak load reduction
or load shifting from VPPs. As PBR was used to incentivize energy efficiency measures, PBR could
incentivize more emissions reduction, capex deferrals, customer enrollment in EV TOU tariffs, and
VPP deployments.
Develop Hosting Capacity Maps. More visibility is required to better understand distribution system
network congestion. Hosting capacity maps should show the location of substations with limited
headroom, along with forecasted EV charging stations and existing and planned solar/storage assets.
VPP deployments take time, so it’s helpful for VPP providers to have greater visibility into where
substations in need of NWAs are located. In an ideal world, a thorough analysis would be required on
electrification impacts on peak loads, and capacity shortfalls for each substation by year.

Deploy Non-Wires Alternatives (NWAs). NWAs should be categorized as either avoided

infrastructure or bridge to wires by utilities and regulators.6 A thorough NWA methodology would
include the following elements:

● Perform location-specific load growth analysis that considers various electrification scenarios.

● Establish capacity needed to support forecasted load growth.

● Identify specific infrastructure investments including substation transformers, distribution.

feeders, etc. Take into account specific network constraints.

● Identify if alternative NWA solutions can be met for forecasted load growth. Then, prioritize
NWA opportunities.

6
Future Grid Plan: Empowering Massachusetts by Building a Smarter, Stronger, Cleaner and More Equitable
Energy Future, National Grid, https://www.nationalgridus.com/media/pdfs/our-company/massachusetts-grid-
modernization/future-grid-full-plan-sept2023.pdf.
CASE STUDY

National Grid ESMP

National Grid recently submitted its Electric Sector Modernization Plan (ESMP) in Massachusetts.
This plan demonstrates a very comprehensive future grid framework accounting for load growth,
network planning, and innovative technologies to implement the least-cost decarbonization
pathway. In particular, National Grid’s future grid plan clearly outlines its approach to non-wires
alternatives, breaks down NWAs into bridge to wires and avoided infrastructure categories, and
shares a very thorough analysis.

Similar to the approach outlined above, National Grid conducts a load growth analysis, identifies the
substations with needed infrastructure upgrades, and clearly outlines a table of when NWAs need to
be implemented and for which locations (Figure 5). As a VPP provider, AutoGrid applauds National
Grid’s detailed analysis and forward-looking transparency to help technology providers plan ahead
to reduce costs in the future.

NWA Projects in Central Sub-Region

Substation Projected In First Year of

# Project
Location - Town Service Date Overload

6 Pratts Junction Rebuild Sterling 2029 2023

9 New Substation Near Grafton Grafton 2034 2026

15 East Webster Feeder Expansion Webster 2029 2023

18 New Substation Near Southbridge Southbridge 2034 2023

19 New Substation Near Webster Webster 2034 2023

21 New Substation near Greendale Worcester 2034 2025

23 Grafton Street Rebuild Worcester 2034 2025

Figure 5. Sample NWA project listing in National Grid’s MA ESMP (2023). (Image credit: National Grid)
Recommendation #3: Promote Open Standards
and Open Access to APIs
High-Level Takeaway: Interoperability and open platforms promote maximum participation
of DERs, and their critical capacity, across markets. Open standards and open access to
application programming interfaces (APIs) can accelerate VPP growth by avoiding vendor lock-
in and promoting customer choice.

Seamless interoperability of the widest range of DER assets and capabilities, across the most diverse
control systems, is crucial for advancing the goal of reliably meeting growing electricity demand.
VPPs are only beneficial to the grid if they scale and if they become more diverse, made up of
heterogeneous availability profiles which aggregate into a more reliable, and firm-like resource, able
to address multiple use cases, from capacity and energy to ancillary services. Today, almost all of
these assets are speaking a different language, which makes it inefficient to scale VPPs and limits
what they can be used for.

As noted in the DOE Liftoff report, “Creating seamless data flow between aggregators, consumers,
VPP platforms, and utilities has the potential to substantially lower transaction costs for VPP
deployments.” One of the top ways we can accelerate VPP deployments is through data and device
interoperability between DERs, VPP providers, energy providers, and end customers.

Why does this matter?

Interoperability allows DER aggregators such as AutoGrid to connect with and manage a
wide variety of assets. This enables the widest array of choices for customers among the various
assets that can be operated as a DER. Limiting the types of assets that can be enrolled in a VPP
due to interoperability issues leads to friction in the customer experience and lost opportunities for
customer participation. There are instances where entire asset classes and their associated benefits
could potentially be excluded with the lack of interoperability.

For example, a customer’s EV choice should not limit which rooftop solar vendor they can partner
with, or which retailer they select, or which VPP program they are eligible for. The entire VPP
ecosystem benefits when open standards and open platforms prevent lock-outs. Everyone in the
industry benefits from a seamless, smooth customer experience across all smart energy devices.
Consider the following:

● By maintaining a closed system, vendors leave MWs on the table—unmanaged (which could
increase stress on grid) and not fully optimized to their full potential—which will slow down
VPP deployments.

● Interoperability is even more important for DERs than it is for charging mobile devices. If every
type of car or solar panel had its own VPP protocols and interfaces, VPP growth would stall.
Additionally, closed system solutions create high transaction costs for VPP vendors to get
electricity data from device manufacturers to perform measurement & verification activities
that inform performance and payments.
AutoGrid Recommendations on Interoperability
AutoGrid believes in a technology- and vendor-agnostic VPP platform to aggregate and manage
a wide variety of DERs for energy providers while maintaining data privacy and upholding high
cybersecurity standards. AutoGrid complies with various open communication protocols including
IEEE 2030.5, IEEE 1815-2012 (DNP3), OpenADR, Sunspec ModBus, and other SCADA protocols.

While it takes upfront investment in time and resources for DER providers and third-party
aggregators to comply with evolving standards, it’s important that all market players are moving
in the same direction so that in a few years, every device communicates using the same standard,
which will accelerate the deployment of VPPs.

As an alternative to open standards, many OEM providers have proprietary APIs that DER
aggregators must pay subscription fees to access. Whether DER providers are using open standards
or proprietary APIs, it is critical that OEM providers provide open access to the APIs and send
updated documentation on their proprietary APIs to third-party aggregators in a timely manner.
Without accurate API documentation, DER aggregators will encounter even more barriers to
reliable device communication.

Other OEM providers have proprietary APIs and do not allow DER aggregators to access them.
Alternatively, some OEM providers only allow access to their APIs once certain requirements are met
by the VPP provider. In this case, there are devices that cannot be aggregated, which leaves MWs of
demand flexibility unmanaged. In turn, these MWs of unmanaged flexibility can exacerbate peak
demand and can’t be shifted to off-peak hours.
CASE STUDY 1

California Rule 21—A Quick Guide on Inverter

As more BTM rooftop solar PV and energy storage assets came online in California, the California
Public Utilities Commission (CPUC) updated Rule 21 with recommendations from their Smart
Inverter Working Group.7 Other jurisdictions such as ISO-New England, Hawaii, and the Public
Service Commission (PSC) in Arizona have also required IEEE 1547-2018 compliance for their inverter-
based assets (Figure 6). The goal is to require smart inverters to comply with grid-interactive
interconnection requirements such that they can respond to command signals to contribute when
the grid experiences instability and/or requires frequency regulation.

Several standards, such as IEEE 1547 and Open ADR, are adopted across the industry. Inverter-based
resources comply with IEEE 1547-2018 by meeting one of the following communication protocols:
IEEE 2030.5 (still being finalized), Sunspec (Modbus or TCP), or DNP 3.8 Similar to how hardware
devices evolve and improve, industry-wide standards also change and iterate over time. Therefore, if
a regulated body mandates a standard such as IEEE 1547, it will take time for DER aggregators and
VPP providers to stay up to date with the new requirements and it may take several years to fully
comply with these evolving standards.

The ultimate goal is to promote interoperability. If all BTM batteries and inverter-based resources
comply with IEEE 1547-2018, and the regulations lead the industry in the same direction, then all VPP
providers can communicate with these devices, which will accelerate VPP deployment over time.

Figure 6. Inverter interoperability standards adoption by state. (Image credit: EPRI)

7
California’s Rule 21: A Quick Guide on Inverter Compliance by Models and Manufacturer, Kate Collardson and
Aaron Bingham, Source.
8
CIEEE 1547-2018 compliance update, Enphase, Source.
CASE STUDY 2

PSD2 Promoting Open APIs in Europe

The rise of many APIs and the push for open APIs is not unique to the energy industry.

With the rise of digital financing solutions in Europe, the European Commission responded
to innovation in the fintech space by passing the Payment Service Providers Directive (PSD2).
This regulation allows third-party providers access to customer data while improving customer
authentication processes, standardizing incident reporting, and further enhancing customer
protections. Colloquially known as “open banking,” EU banks must now provide open APIs to
allow third-party service providers to access payment details,9 and customers can use any third-
party provider for their banking services. The legislation enhanced innovation in the fintech space
by promoting secure open APIs while protecting and regulating consumer rights within the
banking industry.10

If the EU can promote common and secure open standards / open access for banking details,
the United States could similarly promote open APIs for DER telemetry data. If U.S. regulators
decided to create an open API requirement across DER OEMs and promote open access to utility’s
meter data, they could also define cybersecurity standards, data privacy, and customer protection
regulations simultaneously.

9
Open banking and PSD2 - Secure innovative services via Open API, Thales, https://www.thalesgroup.com/en/
markets/digital-identity-and-security/banking-payment/digital-banking/psd2/open-banking#:~:text=PSD2%20
specifies%20that%20consumers%20have,and%20payment%20initiation%20from%20another.
10
Everything you need to know about PSD2, BBVA, https://www.bbva.com/en/everything-need-know-psd2/.
Recommendation #4: Improve Integration of
VPPs into Wholesale Market
High-Level Takeaway: FERC Order 2222 is a step in the right direction, but the market has a long
way to go to realize its vision of creating a level playing field for distribution-level DERs to be
able to provide value upstream into transmission-level wholesale markets.

In the United States, FERC Order 2222 requires that each ISO/RTO remove barriers for DERs to
participate in energy, capacity, and ancillary service markets. For example, solar + storage assets
can provide meaningful value to wholesale markets, while also serving the building’s onsite load,
providing bill savings, and meeting customer preferences.

While some ISOs have completed their 2222 compliance filings and are focusing on implementation,
other ISO/RTOs are still iterating. As FERC approves portions of filing and rejects others, VPP and
utility stakeholders are providing feedback on how certain implementation guidelines may impede
VPP deployments. For example, some ISOs are stating that they would be technically ready for DER
participation as late as 2026 or 2030, referencing required updates to legacy software systems.

Some leaders in the VPP space, including California and Texas, are actively demonstrating how
aggregating DERs can help prevent blackouts and provide peak capacity during extreme weather
events. The key has been allowing VPPs to participate in wholesale markets.

Why does this matter?

VPPs are comprised of demand-side resources and should be able to compete with utility-scale
generation assets to provide grid services to wholesale markets without restrictions. Once permitted
to participate in wholesale markets, market operators will make the most optimal decisions by
dispatching the lowest-cost resources.

Unshackling VPPs from onerous ISO requirements will allow ISOs to meet their impending capacity
shortfalls using an “all of the above” strategy and ultimately allow the markets to decide which
assets to dispatch.

Dispatch Lowest-Cost Resources First. ISO/RTOs should be required to make the most
economically efficient decisions by dispatching the least-cost resources. In many cases,
that will be DER aggregations in the form of VPPs.

Require Stakeholder Engagement: When writing new compliance filings for metering
and DER telemetry requirements (e.g. min of 10 kW per DER, or 2-second telemetry
requirements), ISO/TROs should be required to perform stakeholder engagement
across the entire energy solution ecosystem, and perform an industry analysis on the
types of resources and vendors that can meet the new requirements.
 Mandate Metering Data Access. Regulations should require that DER aggregators and
VPP providers receive metering data from both utilities and OEMs in a timely manner.
Currently, VPP providers can receive missing data, data delays, and even incorrect data
that can lead to penalties and slow down accurate performance calculations.11

Explore Grid Service Alternatives: If existing energy and ancillary service markets
are not adequately designed for VPPs, an alternative market product, such as flexible
demand, could be introduced for the type of services provided by VPPs.

CASE STUDY

Lessons Learned from Australian Market

Australia has some of the highest rooftop solar penetration in the world12—and with high solar
penetration comes high curtailment challenges. There are a lot of parallels between the Australian
market and US markets such as mid-day curtailment challenges, recently decommissioned coal
plants, rising peak demands, and transmission constraints, which are all impacting quality of service
and further exacerbated by wildfires and other natural disasters.

With so many DERs, aging infrastructure challenges, and high levels of curtailment, Australia
is one of the world’s leaders in aggregating DERs into VPPs and extracting their full value for
various grid needs. VPPs have been actively providing frequency regulation services in Australia,
especially facilitating load-shifting to avoid negative grid net load (where markets pay for more
electricity demand).

Regarding DER participation in wholesale markets, the BTM batteries that are actively participating
in Australia’s Frequency Control Ancillary Services (FCAS) markets are some of the first DERs to
provide fast-responding ancillary services. Australian Energy Market Operator (AEMO) is actively
iterating on regulations that allow DERs to participate in other market products, traditionally limited
to front-of-meter (FTM) assets. AutoGrid has been working with leading retailers and gentailers,
network operators, and other partners in the Australian markets as AEMO continues to develop
the regulatory frameworks for DERs and VPPs. As a leader in the space, some of the factors that
contributed to VPP’s initial success in Australia are summarized below.

11
Energy Data Portability: Assessing Utility Performance and Preventing “Evil Nudges,” Mission:Data, https://
static1.squarespace.com/static/52d5c817e4b062861277ea97/t/5c3a849b562fa75d70fd7953/1547338949271/
Energy+Data+Portability.pdf.
12
Australia had 5GW of new wind/PV capacity installed in 2022 alone, 2.7GW of which was rooftop. (Source:
Australia Report 2023, Clean Energy Council, https://assets.cleanenergycouncil.org.au/documents/Clean-Energy-
Australia-Report-2023.pdf.)
Growth and Success Factors

● Large-scale trials have quickly enabled commercial and technical learnings.

● The funding environment has been favorable for renewables, ESS, and eMobility.

● A confluence of market drivers combined with regulatory enablement has allowed VPPs and
DER-led solutions to be rapidly tested and expanded.

● Regulations have rapidly evolved in the same direction. This year, two new FCAS products
became available, largely accessible to the same assets and software platforms, and
dynamic operating envelopes are already being explored to further augment static
operating envelopes.

● DER integration standards such as IEEE 2030.5 have helped ensure that CAPEX deployed on
DERs and smart devices contribute to grid flexibility now and in the future.

● Regulators have rapidly explored options such as VPP contributions to wholesale DR products
(traditionally limited to large customers), essential service delivery, and support for regulation
services in addition to contingency FCAS.
Conclusion: Looking Ahead to 2024
The U.S. electricity grid is undergoing a profound transformation marked by the rapid proliferation
of DERs. Virtual power plants (VPPs) are playing a pivotal role in addressing associated challenges to
grid reliability and stability. However, VPP deployments face impediments, most notably regulatory
barriers that demand immediate action to keep up with the pace of change.

AutoGrid has prioritized the top four regulatory barriers for VPPs, highlighted the urgency for
improving these four areas, and identified best practices to help inform emerging VPP markets.
We look forward to working more closely with state and federal regulators on defining a landscape
more conducive for VPPs. Some states are demonstrating leadership to pave the way for VPP
deployments in the coming years, including but not limited to Illinois, Massachusetts, and Colorado.
With winter 2024 coming, the need for reliable capacity feels universal, and VPPs can respond to this
call to action.

Over the coming year, AutoGrid is hopeful that regulators, utilities, and other clean energy players
take meaningful action to appropriately compensate VPPs, incorporate VPPs into grid planning
processes, advance open standards and open access to APIs, and improve VPP integration into
wholesale markets. We’re excited to see changes in 2024 that accelerate smart energy solutions and
scale VPP adoption in the United States.

LET’S CONNECT

Learn more about AutoGrid’s VPP solutions at auto-grid.com/

solution/virtual-power-plant, or email your questions to the
author at sruthi.davuluri@auto-grid.com.

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