Overview 

Virtual power plants (VPPs) are emerging as a cost-effective tool for states looking to address energy affordability, and lower-cost ways to meet peak electricity demand. This memo demonstrates how states can tap into the strengths of their Economic Development Agencies (EDAs) and Green Banks to accelerate VPP deployment. This document examines the potential for EDAs  and Green Banks to assist in financing the distributed assets that make VPP participation possible. EDAs and Green Banks can serve as program co-administrators and bring project origination expertise to complement the competencies of utilities, utility regulators, grid operators, and VPP developers. 

What Makes a VPP Work

A virtual power plant is an aggregation of distributed energy resources, or devices such as smart thermostats, electric vehicle (EV) chargers, water heaters, behind-the-meter batteries, or rooftop solar panels, which are coordinated to provide grid services. By changing when electricity is consumed, stored, or exported across thousands of sites, a VPP can mirror the availability and predictability of a supply-side resource, providing grid capacity without the cost or emissions of a peaker plant.

A successful VPP requires orchestration. Orchestration is what separates a managed VPP from a passive demand response program. For a VPP to be genuinely useful for grid reliability, the utility must be able to treat aggregated VPP capacity the way it would treat a controllable battery or conventional generator: dispatchable on demand, available when called, and predictable in magnitude. This typically requires control technologies (smart inverters, EV chargers, HVAC or battery management systems) that can receive and execute dispatch signals in near real-time, and forecasting software that predicts asset availability, manages dispatch sequences, and ensures repeatable performance with minimal disruption to owners.

This combination carries a high technical barrier to entry. It is best operatedby a utility, independent system operator (ISO)/regional transmission organization (RTO), or experienced third-party aggregator, which shapes how VPPs might be supported by a state.

Importantly, customers face an asset acquisition threshold before they can participate at all. The devices that make up a VPP, whether a smart thermostat, EV charger, or battery system, typically provide ongoing efficiency and resilience benefits to the building occupant even when not dispatched for grid services. This "value stack" is important:  it means financing these assets with concessionary capital is not just a program subsidy, it is an investment in durable community infrastructure.

Key Actors

Any successful VPP involves the following:

• The customer or site host owns or controls the device and agrees to program terms.

• The Distributed Energy Resource (DER) asset provider manufactures, installs, finances, or services the device. Net new procurement is not always necessary; existing devices can typically be enrolled.

• The VPP operator or platform provider handles enrollment, dispatch logic, customer communications, measurement, and settlement. In addition the VPP operator owns the Distributed Energy Resource Management System (DERMS), the central software responsible for orchestration that makes a VPP function. There can be a DERMS at the operator level and the utility level.

• The utility owns the poles and wires, sets interconnection requirements, and in most programs serves as the buyer of grid services, directly or indirectly.  If the utility is not involved, the societal value of the VPP services can decline. 

• The ISO/RTO, in organized markets, may provide wholesale market access under rules such as FERC Order 2222.

• Regulators shape the compensation and planning framework in all markets.

EDAs and Green Banks can be the deployment engine for DERs in addition to this actor set. They can be leveraged by states by providing financing and program administration functions.

How State Economic Development Agency and Green Bank Involvement Can Support VPPs

The vast majority of VPP programs are administered by a utility, ISO, or aggregator. Of 48 programs identified in the Clean Energy States Alliance's national survey, only four use a different model. The state examples below demonstrate those alternative approaches.

Connecticut Green Bank & Energy Storage Solutions: The Connecticut Green Bank, a quasi-public state Green Bank, announced in 2025 a partnership with GoodLeap, a VPP platform, to dispatch batteries in a VPP under Connecticut's Energy Storage Solutions program. The Green Bank serves as co-administrator alongside the state's two utilities, handling customer recruitment, technical assistance, and asset financing. GoodLeap's software integrates with utility DERMS systems. The Green Bank’s institutional funds (drawn from a ratepayer special benefits charge and Regional Greenhouse Gas Initiative (RGGI) proceeds) also provide for an upfront incentive that reduces installation costs, paired with ten-year performance incentive payments tied to actual grid contribution during critical periods. The Green Bank’s existing relationships with residential and small business customers improve uptake. 

Massachusetts Clean Energy Center — Clean Peak Energy Standard:  MassCEC, a quasi-public economic development agency, administers the Clean Peak Energy Standard, under which participants earn tradeable Clean Peak Energy Certificates during designated peak windows, which retail electricity suppliers must procure or else pay a fine. MassCEC handles program administration, measurement and verification. This program is structurally distinct from a true VPP: there is no dispatch signal, no real-time aggregation, and assets self-dispatch based on fixed seasonal windows written into regulation. If peaks shift, the assets do not respond, which limits the program's credibility as a substitute for dispatchable peaker capacity. It is a useful model for an EDA-administered clean energy certificate program, but not a strong template for grid utilization or reliability.

Efficiency Maine Trust — Small and Large Battery Initiatives: Efficiency Maine is a quasi-pubic agency established to run energy efficiency programs and is funded by ratepayer charges and RGGI proceeds. Efficiency Maine administers both a residential and a commercial battery incentive program using a contracted DERMS platform (Virtual Peaker), procured through competitive solicitation. Distribution utilities have minimal involvement; dispatch is targeted at ISO-NE peaks using forward-looking forecasts rather than real-time signals. Most DERMS deployments in the U.S. are utility-owned or operated, so running one through a quasi-public agency is a structurally distinct and interesting model, though its grid reliability value may be constrained by the absence of real-time distribution utility coordination.

California Energy Commission — Demand Side Grid Support Program: The CEC, a state energy policy and planning agency, administers a statewide emergency demand response program that pays customers directly for load reduction during CAISO emergency windows. There is no utility involvement by design; the program was specifically designed to reach all California customers in a way that a CPUC- or utility-administered program could not. The state funds the program as a direct public policy expenditure, justified by avoided peaker plant costs. This is a useful precedent for a state agency acting as the sole administrator of a demand flexibility program, though its emergency-only trigger limits its day-to-day grid utilization or reliability value.

The Opportunity for States

These examples point toward a role for state EDAs and Green Banks to finance the assets that make VPP participation possible, thus expanding access to communities and customers who could not otherwise meet the upfront cost threshold. The examples suggest that EDAs and Green Banks can also serve as a program co-administrator alongside a utility or private platform operator.

The Connecticut model is the strongest template. It suggests a structure in which the Green Bank is not merely funding devices, but actively shaping the program — handling customer-facing functions, technical assistance, and stakeholder engagement — while a software partner manages dispatch and a utility serves as the grid-side offtaker. The Green Bank's existing community project origination function and concessionary capital make it well-suited to the enrollment and financing roles that are often the weakest links in utility-administered programs.

Historically, some utilities have slowed VPP adoption by restricting aggregator access to grid and customer data and limiting program structures to narrow demand response constructs. Emerging state legislation is beginning to close both gaps, mandating open data access for third-party aggregators and expanding eligible grid services to include congestion relief, distribution upgrade deferral, and ancillary services. That regulatory momentum creates a favorable environment for a Green Bank or EDA to step in with a more ambitious and inclusive model.

Limits of the EDA/Green Bank Role

A Green Bank or EDA is not a substitute for utility and regulatory engagement, and the program's long-term value depends on that engagement deepening over time.

Utilities are generally required by regulators to compensate DER owners for the capacity value their assets provide to the grid, and that regulatory mandate has historically been the primary driver of utilities making that value stream available. There is a structural reason utilities move slowly here: unlike traditional capital expenditures where building new infrastructure entitles a utility to a regulated return on equity, typically 8-11%, a VPP program does not generate that same return and is often considered an ‘operational’ expense, thus generating no return. Paying for distributed capacity is a cost, not an investment, from the utility's financial perspective, even though studies have shown it can ultimately save ratepayer dollars.

In summary, an EDA or Green Bank can unlock meaningful near-term benefits and serve as an effective on-ramp for a VPP program, but the  desired long-term outcome requires utility and regulatory partner involvement.

For questions contact: Rachel Chamberlain, State Energy Strategist at The State Support Center rachel@s2strategies.org