DOE’s 2025 Pathways to Commercial Liftoff: How VPPs Are Reshaping Utility Strategies

The U.S. Department of Energy’s (DOE) 2025 Pathways to Commercial Liftoff Report builds on its 2023 analysis, providing updated data on VPP adoption, cost-effectiveness, regulatory momentum, and wholesale market participation. The findings are clear: VPP deployment has grown significantly, with North America operating at 33 GW capacity. State policies are accelerating adoption, with Colorado’s SB24-218 bill and New York’s VDER Program implementing new utility mandates while ISOs and RTOs refine market structures to better integrate distributed energy resources (DERs). 

VPPs have evolved from niche solutions to essential capacity resources, reshaping long-term grid planning. The 2025 DOE report presents the regulatory, financial, and operational considerations for scaling VPPs. Utilities that embrace VPPs today will lead the energy transition—avoiding costly infrastructure, enhancing grid reliability, and meeting regulatory mandates with a flexible, customer-centric solution.

The Challenge: Surging Demand and Infrastructure Bottlenecks

The U.S. energy landscape has shifted rapidly in just two years. AI-powered data centers are driving higher electricity demand, while the return of manufacturing to U.S. soil adds to this strain. Meanwhile, the electrification of buildings and transportation pushes peak energy use to new levels. Traditional grid infrastructure alone can’t keep up with the pace of change.

The DOE projects that U.S. peak demand will rise from 800 GW in 2024 to 900 GW by 2030, an increase of 100 GW. At the same time, 100 GW of existing generation is set to retire, creating a total capacity shortfall of 200 GW. This includes 100 GW to meet new demand and another 100 GW to replace retiring capacity.

Historically, utilities relied on capital-intensive transmission and generation projects that take years to develop. With infrastructure constraints mounting, utilities need faster, cost-effective alternatives, making VPPs a critical solution.

VPPs as a Strategic Resource

Since the DOE’s 2023 report, the VPP market has matured rapidly. North American operational VPP capacity now represents 20% of all available DER capacity. A study confirms that VPPs provide peak capacity at 40-60% lower costs than gas peaker plants or grid-scale battery storage, proving that DER aggregation delivers significant savings and reliable capacity at scale.

Utilities that embrace VPPs today will lead the energy transition—avoiding costly infrastructure, enhancing grid reliability, and meeting regulatory mandates with a flexible, customer-centric solution.

Regulatory and market shifts are also driving adoption. As mentioned earlier, Colorado SB24-218 mandates that utilities integrate VPPs into long-term planning, setting a precedent for other states. New York’s Value of Distributed Energy Resources (VDER) Program is refining how DER contributions are valued, ensuring more predictable compensation structures. ISOs such as CAISO and ISO-NE have updated market rules to accommodate DER participation, enabling utilities to bid aggregated resources into wholesale capacity, energy, and ancillary services markets.

Customer participation has surged since 2023, driven by programs like Arizona Public Service’s Cool Rewards and San Diego Community Power’s Battery Savings Initiative. Well-structured demand response programs have significantly reduced grid strain, and customers are increasingly willing to participate when incentives align with their energy usage patterns.

Why VPPs Are a Focus for Utility Leaders

For utility executives, VPPs offer a cost-effective alternative to traditional grid expansion while enhancing resilience. Utilities can reduce capital expenditures and defer infrastructure investments by leveraging existing DER assets.

Beyond cost savings, VPPs provide decentralized resilience. Utilities seek new strategies to maintain grid stability as extreme weather events intensify. Traditional centralized generation is vulnerable to disruptions, whereas VPPs distribute energy supply across thousands of assets, creating a more dynamic, responsive grid.

Another key driver for utility adoption is revenue potential from wholesale markets. With FERC Order 2222 enabling DERs to participate in capacity and energy markets, utilities can now monetize distributed resources. Several ISOs and RTOs are refining frameworks to make participation seamless, strengthening grid flexibility and financial viability.

Finally, VPPs improve customer engagement. As demand response programs expand, customers are taking a more active role in managing their energy consumption. Well-structured incentives increase participation rates and reduce peak demand and operational strain on the grid.

The VPP Advantage 

Virtual Power Plants (VPPs) are now a strategic necessity for utilities facing rising demand, regulatory mandates, and grid volatility. The 2025 DOE Liftoff Report confirms that utilities integrating VPPs gain: 

• Lower Costs – VPPs provide peak capacity at a 40-60% lower cost than traditional peaker plants. 
• Stronger Grid Resilience – Decentralized energy supply mitigates extreme weather risks. 
• New Revenue Streams – FERC Order 2222 enables DERs to participate in wholesale markets. 
• Regulatory Compliance – States like Colorado now require utilities to integrate VPPs into long-term planning. 

Five Critical Actions for Utilities

The DOE report outlines key steps utilities should take to accelerate VPP deployment:

• Simplify the enrollment process. Automated opt-in models, streamlined onboarding, and reduced administrative barriers will help scale these programs.

• Standardize VPP operations. Universal data-sharing standards will allow utilities to integrate VPPs seamlessly across jurisdictions.

• Incorporate VPPs into Integrated Resource Plans (IRPs). Proactively including VPPs in long-term planning will strengthen regulatory positioning.

• Broaden market access. ISOs and RTOs must refine market rules to allow more flexible participation from aggregated DERs while reducing telemetry and data-reporting burdens.

• Expand DER adoption. Incentives must encourage broad participation, particularly in underserved communities.

Boosting VPP Capacity to 80-160 GW by 2030

The DOE envisions rapid VPP expansion, with a target of 80-160 GW by 2030. This would offset the need for more than 200 new fossil-fuel peaker plants, which could also save utilities and customers billions in avoided infrastructure costs, ensuring that grid modernization remains financially sustainable.

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A Market-Defining Shift for Utilities

VPPs are no longer theoretical but a proven, scalable tool for managing rising demand and regulatory expectations. Deployable in vertically integrated and deregulated markets, VPPs provide utilities and aggregators with a flexible way to optimize operations, increase participation, and better serve customers.

DERs are expected to grow by 217 GW over the next five years and simplifying enrollment through clear program benefits, flexible options, and streamlined processes will be key to adoption. Now is the time to integrate VPPs into long-term planning to lower peak demand costs, strengthen resilience, and create new revenue opportunities in wholesale markets.

For more insights, visit liftoff.energy.gov.