America’s power grid is aging. Much of the infrastructure that keeps the lights on today was built in the 1960s and 1970s, long before the digital and electronic demands of the 21st century. The results are increasingly visible: reliability issues, rising costs, and a growing need to modernize systems that were never designed for the challenges of climate volatility or the increased load from data centers and electric vehicles (EVs). According to analysts, the price tag for rebuilding or significantly upgrading the US grid could reach $2.5 trillion by 2035, which could rise due to inflation, supply constraints, and policy constraints. That figure not only represents the cost of steel, wire and concrete—it’s also a reflection of how deeply the United States depends on a centralized, one-way energy system, many of which are nearing the end of their lifespan.
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Meanwhile, a quieter and much more affordable alternative is emerging: virtual power plants (VPPs). Coordinated through distributed energy resource management systems (DERMS), which manage thousands of small, behind-the-meter assets—rooftop solar, home batteries, EV chargers, water heaters, smart thermostats—these digital systems can change and shape power demand in real time. Virtual power plants are cheaper than building new power plants. In fact, industry estimates suggest that the cost of developing a VPP is only 40% to 60% of that of building a comparable production facility. For utilities and regulators faced with capacity shortages and aging infrastructure, this is a number of serious concern.
Perhaps the most important change introduced by modern DERMS is the philosophy. Traditional demand response programs were designed to reduce load – temporarily reduce consumption to prevent overload. The most advanced grid-edge DERMS, in contrast, are built to shape demand—using predictive analytics and real-time control to optimize when and how energy is consumed or produced. For utilities, this means moving from a defensive to a proactive model. Instead of reacting to peaks, they can manage and regulate distributed resources to shape the load curve, reduce distribution constraints, and lower wholesale electricity costs. This means that utilities can overcome barriers that keep distribution operations, power purchasing, and other operational teams away from DERs and use VPPs just as they use their traditional generation fleets.
The American Society of Civil Engineers (ASCE) recently downgraded the nation’s energy infrastructure from a C- to a D+. The reasons are complex but familiar: deferred maintenance, underinvestment, climate stress, and the rapid electrification of everything from cars to manufacturing. The reliability concern has become a national issue. Earlier this year, the Department of Energy (DOE) declared a national electricity emergency, citing capacity shortages and aging assets as serious risks to grid stability. In response, federal officials have delayed the retirement of many fossil-fuel plants to preserve reserve margins. While this may help with short-term reliability, it comes at a very high price: The analysis found that delays cost utilities and ratepayers about $29 million in just 38 days.
For decades, utilities have relied on legacy load control systems—such as simple one- or two-way load control receivers attached to air conditioners or water heaters that allow operators to reduce demand during peak periods. These systems were the foundation of demand-side management programs and, for small cooperatives and municipal utilities, remain an important tool. But maintaining these legacy networks is increasingly difficult. Hardware is outdated, components are no longer manufactured, and support documentation is often buried in decades-old technical manuals. Environmental conditions – heat, humidity, dust – take their toll on sensitive electronics. Even the electrical equipment that supports the systems must be carefully maintained or replaced. Beyond the maintenance burden, legacy systems are limited by design, which is primitive and unsophisticated. They cannot optimize loads on different device types, predict demand, or respond dynamically to price signals or grid frequencies. As energy systems evolve toward distributed, flexible, and bidirectional models, these legacy networks run the risk of hidden assets.
Modern grid-edge DERMS platforms behave fundamentally differently. Instead of relying on physical switches, they leverage broadband connectivity and the Internet of Things (IoT) to collect and control distributed energy resources in real time. These systems can manage a diverse portfolio of devices—solar inverters, home batteries, EV chargers, thermostats, water heaters—and respond to signals from the grid to reduce or shift load when needed. By combining these assets into coordinated virtual power plants, utilities can achieve many of the same goals as building new generation or transmission lines—but at a fraction of the cost. More importantly, these programs can be phased in and scaled over time, avoiding the large upfront capital commitments required for traditional infrastructure projects. This digital layer also opens up new avenues for customer engagement. With the right incentives, households and businesses can enroll their devices in demand-side flexibility programs, effectively turning consumers of electricity into contributors to grid stability. For utilities, it creates flexible, responsive resources that thrive by adopting distributed technologies.
Demand flexibility isn’t a theoretical concept—it’s already producing measurable benefits. According to the U.S. Energy Information Administration (EIA), more than 10 million customers participated in demand response programs by 2022, collectively saving more than one terawatt hour of electricity. The potential of virtual power plants is expanding even further. A 2024 analysis by Brittle Group found that expanding California’s VPP portfolio could save ratepayers $206 million between 2025 and 2028 by reducing peak demand and delaying the need for new generation and transmission. Such savings are amplified by scalability: the more devices are registered, the greater the total capacity of the system and the more flexible the grid becomes. This stands in stark contrast to legacy load control systems, which require physical upgrades and replacements for expansion.
Federal and state policymakers now face an important decision. Delaying fossil plant retirement takes time, but solutions do not. Rebuilding the network is necessary – but doing so exclusively through conventional means may not be economically or politically feasible. Virtual power plants and grid-edge DERMS do not replace the need for hard infrastructure, but they offer a bridge strategy: an immediate, scalable, and cost-effective solution that can reduce the stress on transmission and generation assets during the energy transition. In parallel, continued investment in broadband access – particularly in rural and underserved communities – will determine how widespread these digital energy solutions can be. The same connectivity that enables telemedicine or distance learning can also enable local participation in demand-side flexibility programs, creating a new kind of shared infrastructure for energy flexibility.
The grid of the future will not be defined by steel towers and substations alone. It will be characterized by digital convergence, where millions of devices work in sync to maintain a balance between supply and demand. In this perspective, virtual power plants act as connective tissue between individual consumers and the wider energy system. Transitioning toward this model requires trust, transparency, and education. Customers should understand how subscriptions benefit the network and their own bills. Regulators should adapt frameworks to value flexibility as a market resource. And utilities must invest in software, cybersecurity, and customer engagement with the same seriousness once reserved for transformers and turbines alone. The challenges are tough, but such are the risks. America’s energy future depends on its ability to modernize—not just through major capital projects, but through better, more adaptive use of the infrastructure that already exists. In this sense, the rise of virtual power plants is not just a technological innovation. It’s worth noting that the grid’s greatest untapped resource may be the collective capacity of millions of connected homes and businesses working together to keep the lights on. —Dr. William Burke If the founder and CEO of Virtual Packer. He was previously at GE as an Advanced Systems Engineer in the Connected Home Software Group, where he helped develop the API that GE uses to communicate with its connected devices.
