Decarbonize buildings -> Scale the Energy Transition

VPPs are the cornerstone of the decarbonization economy

The launch of Aristotle has allowed WattCarbon to finally connect the dots between decarbonizing buildings and scaling the energy transition. Over the next couple of weeks, I want to use this blog to explore how automated measurement and verification (M&V) will unlock the potential of virtual power plants (VPPs), and how Energy Attribute Certificates (EACs) can facilitate competitive demand-side energy markets. This is a substantial topic, and a lot of this will be thinking out loud, with the hopes to spark conversation at what is a pivotal time for our industry. I look forward to critical feedback along the way. As of right now, I’m planning organizing the series so that it addresses four topics:

• Virtual Power Plants

• Automated M&V

• Attribute-based Accounting

• Competitive Demand-Side Energy Markets

Below I’ll preview a few themes related to each of these topics.

Understanding Virtual Power Plants

"Virtual power plant" is a term frequently used in energy circles, though interpretations vary. Broadly, a VPP refers to a coordinated network of demand-side energy assets that collectively deliver value to the energy grid. This value can manifest as generation (e.g., rooftop solar), capacity (e.g., load shifting), emission reductions (e.g., heat pumps), or really any attribute of energy that the market finds valuable.

The core value proposition of a VPP comes from the fact that it changes previous energy consumption patterns. Rooftop solar reduces demand in the middle of the day. Load shifting can increase or decrease demand in different parts of the day. An electrification project changes the fuel that is used to heat a building. In other words, a VPP's value is found in the difference that it creates between "old-business-as-usual" and "new-business-as-usual."

The Role of Automated Measurement and Verification (M&V)

Determining if a VPP genuinely delivers its intended value, whether in the form of carbon reductions, increased capacity, or added generation, requires rigorous M&V. Without clearly establishing a business-as-usual scenario, accurately measuring impact is impossible, akin to dividing without knowing the denominator.

However, defining the business-as-usual scenario can be complex. Heating and air-conditioning loads heavily depend on weather; EV charging patterns fluctuate significantly; even permanent load shifts like solar panels will vary based on the type of building and interactive effects with residents. Automated, real-time M&V, as introduced with Aristotle, makes addressing these complexities feasible.

Beyond Price-Volume Thinking

When discussing VPP value, it’s helpful to move beyond the traditional price-times-volume metric (e.g., dollars per kilowatt-hour). Unlike conventional demand-side energy accounting, a VPP’s value isn’t purely about the volume of energy delivered (or saved); it also hinges on key attributes like timing, location, and the type of energy it displaces. For instance, distributed solar is more valuable in areas where there is lower overall solar penetration, while flexible loads are most valuable when the grid faces supply-demand imbalances. Similarly, a heat pump’s emission reduction value increases as as the electricity it consumes gets cleaner.

VPPs can be thought of as the energy system’s equivalent to accrual accounting for businesses, offering a sophisticated approach to measure and manage demand-side transactions, while factoring in time and temporality.

Competitive Demand-Side Energy Markets

The rapid growth of renewables in Texas, facilitated by ERCOT's open-market policies, provides inspiration for a big idea we have been kicking around: applying Texas-style markets to demand-side energy resources. Imagine if utilities set price signals for VPPs and allowed any demand-side resource aggregation to compete freely. Call it FERC 2222 for the distribution grid. Such an approach could spur innovation, significantly increase grid capacity, reduce consumer costs, and accelerate electrification needed to decarbonize the economy.

Historically, utilities have run programs that trace back to the era of decoupling, when regulators forced utilities to fund energy efficiency. These programs typically offer customers one-time incentives for adopting certain technologies or behaviors. As we know, these command-and-control approaches often discourage long-term investments, leading to inefficiencies, boom-and-bust cycles, and susceptibility to gaming.

By contrast, demand-side markets would operate by sending clear price signals rather than prescribing specific solutions. Utilities could sign sleeved Virtual Power Purchase Agreements (VPPAs) for VPP aggregations on behalf of large customers (like data centers). This more open approach, aimed at the attributes that matter, would encourage market participants to develop organic solutions that incorporate new technology and meet the needs of the local community. Rather than mandating prescribed (often outdated) technology, these markets would incentivize private investment by rewarding good outcomes directly.

Hopefully these topics seem interesting. Feel free to leave comments below on any of these issues. I’m looking forward to having the conversation as we work through these weighty concepts. More to come soon!