Imagine your home or apartment actively contributing to the clean energy transition. Across Minnesota, everyday appliances are becoming vital parts of an innovative approach to managing our electricity system. It’s called Demand Response, and alongside its more advanced cousin, Virtual Power Plants (VPPs), these technologies might be one of our most powerful yet overlooked tools for a clean, affordable, and reliable energy future.
At Fresh Energy, our work to decarbonize every sector of our economy often reveals climate solutions that can decarbonize two sectors at once. VPPs are a great example of this, creating new ways to reduce emissions from both the electricity generation and buildings sectors. By enabling homes and businesses to both consume and generate electricity more intelligently, these systems can reduce greenhouse gas emissions while accelerating our transition to a clean, reliable grid.
Understanding how virtual power plants work, how they benefit the electric grid, and Minnesota’s long history using technology and programs like this is key to accelerating our transition to a carbon-free future.
What are virtual power plants?
Don’t let the technical names fool you — Demand Response and Virtual Power Plants aren’t a cyber-building or virtual factory. It’s thousands of homes and businesses working together to support the electric grid by reducing usage when needed. When electricity demand peaks (typically in early evening) utilities can shift electricity use of enrolled air conditioners, heat pumps, and other smart appliances (often shifting the temperature setting a few degrees) in order to reduce the strain on the grid, called demand response.
What makes a virtual power plant different is that it also adds actual electricity generation like solar panels and battery storage that can feed power back to the grid. This is typically done with a remote-controlled software to help balance the electrical grid, similar to a traditional power plant, which makes thousands of buildings’ generation act like a utility-scale generator instead.
How do virtual power plants benefit the electric grid?
As we work toward a decarbonized future, VPPs offer a smart way to add more clean energy to our grid. They’re another tool like large wind and solar farms, battery storage, and programs that reduce electricity use during peak times in the grid operator’s toolbox to build a reliable, stable, and cost-effective decarbonized grid.
What makes VPPs special is how they connect everyday technologies in our buildings — rooftop solar panels, home batteries, and smart appliances like water heaters — and manage them as one system using remote-controlled software. Unlike programs that just ask people to use less electricity during busy times, VPPs combine actual electricity generation with smart software that controls thousands of enrolled homes and businesses at once. This creates something that works like a traditional power plant but is cleaner and more flexible, helping grid operators keep electricity flowing smoothly.
VPPs also get clean energy onto the grid faster. While big wind and solar projects can get stuck waiting for approval for years in the interconnection queue and cost a lot of money upfront, virtual power plants can sometimes be up and running within a year. Using advanced software to coordinate thousands of buildings to generate clean electricity efficiently is low-hanging fruit for making our grid cleaner and more stable.
Another benefit is that VPPs can let regular people be a part of the energy market. Unlike big power plants built by large companies or utilities, VPPs let homeowners earn money by selling their extra electricity while helping the grid be more stable and reliable, making clean energy more accessible to people at all income levels.
An appealing aspect of VPPs is their hands-off nature for participants. Since VPPs aggregate hundreds or thousands of small renewable energy systems and smart devices across different buildings, individual owners don’t need to become energy management experts. In fact, they don’t even have to manage it at all.
Similar to investing in a mortgage fund, where you contribute capital but financial professionals handle all the complex day-to-day operations for you, joining a VPP allows you to simply install your solar panels, battery storage, or smart appliances and passively benefit from a third-party operating their grid benefits for you. This aggregator — often a utility or third party — monitors real-time and forecasted grid conditions and manages when your system generates, stores, or releases energy to benefit both you and the electric grid. Members of the VPP enjoy financial returns and the satisfaction of contributing to the energy transition without the technical headaches of monitoring grid demands or optimizing your system performance.
Finally, virtual power plants make our electric grid more resilient. The old model relied on huge power plants sending electricity to cities; if something went wrong with the plant, many people would lose power. VPPs spread power generation and use across thousands of locations, so during extreme weather events, parts of the grid can work on their own, keeping the lights on and helping control costs for everyone. This is especially valuable as climate change makes extreme weather events happen more often.
Virtual power plants aren’t exactly a new thing
Here in Minnesota, Demand Response isn’t new. Electric cooperatives have been adjusting enrolled members’ electricity use for decades to increase reliability and reduce costs. What’s new is the expanded purpose: Demand Response and VPPs are now recognized as crucial tools for cutting carbon emissions and avoid building expensive, new natural gas plants that only run a few hours a day or year.
Eight electric co-ops in Minnesota recently received a grant to expand their programs. Minnesota co-ops already manage about 400,000 home appliances that can reduce peak demand by 200 megawatts – equivalent to a power plant. Xcel Energy already has a Demand Response program and just received approval to start its first VPP program, which Fresh Energy supported in its most recent Integrated Resource Plan. This program could procure anywhere from 400 megawatts (MW) to 1,000 MW (or one gigawatt, GW) of electricity capacity, launching and deploying within the next year or two.
For residents, enrolling can mean lower electricity bills, improved grid reliability, and progress toward a clean electricity system. Smart devices make participation seamless — your thermostat, water heater, or EV charger can automatically shift energy use to off-peak hours, earning you discounted electricity rates.
The future looks even brighter as VPPs, buildings with solar panels and batteries, and even some electric vehicles all begin working with each other to feed electricity and technical reliability services back into the grid when it is needed most.
Want to learn more? Our clean electricity team is engaging with regulatory proceedings at the Minnesota Public Utilities Commission to incorporate more VPPs. Plus, Fresh Energy’s Mike Schowalter, director, regional transmission organization advocacy, was on Minnesota Public Radio earlier this spring 2025 to discuss how they’re transforming our energy landscape.
