The State of Virtual Power Plants in 2025: Challenges and Opportunities from Wood Mackenzie 

After twenty years of growth, U.S. electricity consumption is expected to increase an average of 2% each year through 2033. Data centers are driving much of this demand, leaving utilities on the line for adding new supply.

Electricity providers can’t rely on large-scale, centralized power generation to meet growing power needs. Supply chains are spanning into the early 2030s for some components, such as natural gas turbines. Development is further hindered by permitting and interconnection issues, as well as high construction costs.  
 
Under immense pressure to fill the gap, utilities are looking at distributed energy resources (DERs). When DERs—rooftop solar, batteries, electric vehicles—are aggregated along with commercial building loads—HVAC, lighting—into virtual power plants (VPPs), utilities can control them through a cloud-based platform. This allows electric companies to call upon DERs to shift or shed energy in a way that looks much like a traditional power plant. DER owners are compensated for their energy in return.   
 
Heightened utility interest in DERs and VPPs was reflected in a 33% increase in VPP deployments last year, according to Wood Mackenzie’s 2025 North America virtual power plant market report. Both the number of unique offtakers (buyers) of VPP capacity and monetized VPP programs grew by at least one-third year over year. However, even with the buzzing market activity, total behind-the-meter flexible VPP capacity grew 13.7% to reach 37.5 GW online in North America.  
 
As Wood Mackenzie (WoodMac) puts it, the market is “broadening faster than it’s deepening,” highlighting barriers to significant expansion. Here’s a closer look at some of those obstacles, as well as opportunities, named in the report.   

Barriers Holding Back Growth

The modest increase in VPP capacity relative to deployments, offtakers, and monetized programs demonstrates that some factors are limiting providers from growing existing deployments. The report notes some of the problems that have prevented capacity from accelerating as fast as market activity. 
 

• Enrollment caps on utility programs: Public utility commissions may set caps on DER programs to manage grid stability and control program costs. The restrictions placed on the number of participating devices limit the potential for VPPs to provide utility-scale grid services and slow the broader integration of DERs into the electric grid.

• Capacity accreditation reforms: Capacity accreditation helps grid operators ensure available power, but traditional methodologies don’t account for intermittent renewables and more frequent severe weather. Urgent reforms are needed for accreditation to more accurately reflect the value of reliable distributed energy resources.

• Market barriers for small customers: The market continues to mature with new DER technologies in VPP portfolios. The report states that 61% as many deployments included either EVs or batteries as included smart thermostats—the incumbent residential technology. Also, residential customers are making headway in wholesale market capacity. Their share grew 16%, from 8.8% in 2024 to 10.2% today. Still, residential and small commercial customers face problems. Limits on third-party data access for enrollment and market settlement remain roadblocks.

The market will have to overcome these obstacles for VPPs to reach their full potential.

Turning Pressure into Potential

While data centers are the source of new load, there’s an enormous opportunity to tap VPPs as the new source of grid flexibility.

-Ben Hertz-Shargel, Global Head of Grid Edge for Wood Mackenzie

New business models enable more buyers

While there are certainly challenges, the VPP market still holds opportunities. For one, there are more buyers. WoodMac reported that the number of unique offtakers for VPP capacity increased 38% from 2024. Also, the top 25 VPP offtakers each procured more than 100 MW in 2025. Additionally, over half of all offtakers increased their number of deployments by at least 30% compared to last year, demonstrating the breadth of the market. 
 
The increase in buyers is made possible by a new utility business model. DERs are becoming essential to retailer strategies for differentiation and managing price volatility, as seen in numerous partnerships with VPP providers. “Independent distributed power producers” seek to charge batteries when electricity prices are low and discharge them when prices are high, using this energy arbitrage and grid service revenue to fund a third-party-owned (TPO) storage offering for electricity retailers. This business model could find additional promise considering that TPO energy storage still currently qualifies for federal incentives.

Meeting loads while enhancing flexibility

The growth in VPP capacity buyers also correlates with data center deployment. The report notes that the most VPP offtake occurs in PJM (which manages a large portion of the eastern U.S. power grid over 13 states and D.C.) and ERCOT (the Texas grid). These wholesale markets have the greatest disclosed utility data center commitments. For example, American Electric Power said its utilities plan to interconnect 18 GW of data center capacity by 2030, primarily in PJM and ERCOT territory. 
 
On a state level, California, Texas, New York, and Massachusetts are leading the way with 37% of VPP deployments. California was set to rank at the top for VPP growth, but lawmakers recently passed legislation that did not include funding to continue Demand Side Grid Support, which some say would have been the largest VPP in the world.

While data centers are driving demand for the load, WoodMac identifies an opportunity for utilities and DER owners to also benefit. Utilities can use new VPP capacity to increase grid flexibility by offsetting data center coincident peak demand—when customers use electricity as the grid experiences its highest demand—and achieving faster grid connection. Utilities also stand to benefit from VPPs through lower costs, stronger grid resilience, new revenue streams, and regulatory compliance. Meanwhile, homeowners and business owners could earn revenue to minimize higher electric bills.  

Even with the challenges, analysts are optimistic that the immediate need to meet data center loads will drive utilities to increase VPP capacity in the near future. As VPP stakeholders agree on the best solutions, there will be more growth over the next year and significant scaling in those that follow.

Utilities that move early on VPPs won’t just manage demand—they’ll set the pace for the energy transition, achieving lower costs, greater reliability, and compliance with a model that works for energy companies and customers alike.

For more insight, access the report at woodmac.com.