Rethinking VPP Incentives for Commercial Customers  

Over the past two years, utility peak demand forecasts have increased by a factor of five. This growth in electricity demand is driven by investment in data centers and manufacturing, along with increasing electrification. Utilities are acting urgently to accommodate the growing load without compromising reliability and affordability. However, meeting this moment through grid modernization alone is time-consuming and costly.

Virtual Power Plants (VPPs) provide an alternative to grid modernization, orchestrating customer-sited distributed energy resources (DERs). By leveraging aggregated customer load to help alleviate grid strain, utilities are diversifying their resource mix with a cost-effective, scalable resource.

Utilities have created successful VPP programs with the residential and small commercial sectors as well as with larger industrial customers. On the other hand, they’ve found it harder to engage mid-sized commercial customers. While commercial customers make up more than a third of total electricity demand, they remain the hardest segment to engage. In a moment of significant load growth, they are a large untapped resource. But engaging them will require better calibrated incentives and new engagement strategies.

Challenges to Commercial Building Participation

To understand how to best engage commercial buildings for VPP programs, it’s helpful to understand their hesitations with demand response programs.

VPPs evolved from demand response programs used by utilities for the last 50 years. Since the 1970s, demand response programs have helped utilities balance loads during times of grid stress and high-power prices by asking energy users to adjust their demand in response to grid signals. The advent of DERs and advanced analytics enabled scheduled daily dispatching to inject and curtail energy as utilities request. Today, AI-enabled VPPs can serve as flexible energy resources that can both generate and share power for real-time grid optimization.

In return, customers receive various benefits for participating in these programs. Over the years, utility programs have evolved into two tracks: technology-specific programs and financial incentive programs.

Technology

Technology-specific programs subsidize the installation of specific energy efficiency measures. Utilities use business-to-consumer marketing communications such as bill inserts to offer subsidized smart thermostats, EV charging, or other incentives to single and multi-family homes, as well as some small and medium-sized businesses.

Financial

Financial incentive programs offer a large enough monetary incentive to compel manual interventions. Utilities engage these customers one-on-one through account managers or through third-party aggregators.

The problem is that these methods of outreach and incentives miss a large segment of commercial customers, a group known as the “Missing Middle.” Technology-specific programs struggle to scale in complex commercial buildings; you can’t just install a smart thermostat on a 200,000-square-foot office with a proprietary building automation system.

Likewise, financial incentives are too small in comparison to other operating costs to be worth a commercial customer’s time. Customers could perhaps be compelled by larger dollar amounts, but utility incentives are capped by their value to the grid. Even in the best case, utilities are paying commercial customers about $100 to $400 per kilowatt each year. Even $2-4K per year is just not enough to compel a commercial customer to act, which is why it’s so hard to engage this customer class.

Today, most of these “Missing Middle” customers—a sizable portion of the load—are out of reach. However, rethinking engagement strategies and incentives helps utilities tap this elusive segment, opening doors for partnerships that can benefit the entire system.

Engaging Commercial Buildings in VPP Programs

We know that incentives work with residential and industrial customers. This is evident in the more than 33 gigawatts (GW) of demand response enrolled today—enough to meet about 6.5% of wholesale market peak demand. However, the progression of VPP deployment needs to accelerate to support rapid load growth and reduce overall grid costs. The Department of Energy is calling for an additional 80 to 160 GW of VPPs to serve 10 to 20% of peak load by 2030. Aggregating commercial customers will be critical to achieving this goal. Utilities must have the right incentives and approach to make it happen.

The best incentives for commercial buildings speak to what’s important to these businesses. From operating commercial buildings ourselves, hosting focus groups with commercial building operators, and recruiting hundreds of customers, Edo’s team has learned that commercial building operators are deeply risk-averse. They quickly understand the program and find the benefits sufficiently compelling, but they hesitate because it feels risky.

When we ask what decision makers are worried about, two concerns always rise to the top: occupant comfort and external control.

Occupant Comfort

Consider the 3-30-300 principle, which breaks down typical commercial building operating costs per square foot per year:

• $3 for utilities (energy, water, waste)

• $30 for rent (loans, taxes, insurance)

• $300 for payroll (productivity, people, and assets)

The best investments are those that enhance productivity. Think about an energy efficiency program. Yes, a 10% increase in energy efficiency provides a $0.30 savings per square foot in utility costs. However, a more comfortable environment for the employee—optimized lighting and temperature—may improve worker performance. That’s the real value to commercial buildings because a 10% gain in productivity is worth $30 per square foot.  
 

External Control

Commercial customers are also apprehensive about letting someone else put a hand on the steering wheel of their building. Programs come with hard-to-predict timing and occasionally carry penalties for opting out. Financial incentives alone are not enough to relinquish control and, therefore, create risk, especially when productivity is on the line. 

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Our Approach

These buildings house schools, medical clinics, and offices. Energy isn’t their top priority—it’s not even in the top three. Incentives alone are unlikely to change that prioritization. That’s why Edo takes a different approach. We emphasize risk reduction, not just value-add.

Edo’s recruitment strategy is built around three key elements:

• Transparency: Clear tools and dashboards show what’s happening and why.

• Non-invasive: We model interventions for scale and to avoid occupant disruption.

• Control: Everything can be overridden by operators and then reflected in our forecasts.

 
The result is faster enrollment, greater load participation, and improved cost-effectiveness.

To gain the full potential of VPPs, utilities need more than better incentives—they need new engagement strategies. Edo’s approach is built around how commercial buildings actually operate, where risk reduction matters more than reward. By prioritizing transparency, control, and minimal disruption, we help customers feel confident saying yes. 

About the Author

Mike Kowalick is the former Director of Utility Sales at Edo, where he helps utilities unlock the untapped potential of commercial buildings for virtual power plants. A certified building operator with a background in construction management and commissioning, Mike brings a building-first lens to grid challenges. He’s worked with vertically integrated utilities across the country to design and deploy demand flexibility programs that work in a variety of environments.