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Policy Memo: Bring Batteries for a Virtual Power Plant and a Virtuous Cycle


In Brief

A state that cherishes its forests but struggles with power outages needs a novel solution for expanding energy resilience. 

Creating a network of home battery systems can address reliability needs, especially in rural, low-income communities. 

In this memo, the author makes the case for a virtual power plant connecting battery systems - improving energy resilience and ushering in clean energy.

The following memo, lightly edited for publication, was crafted in response to an assignment for the Yale Financing and Deploying Clean Energy Policy Course and should not be interpreted as the position or preference of the author’s department or employer. 
The policy memos we publish distill what participants learn about stakeholders, terms and levers in the Policy module of the Financing and Deploying Clean Energy certificate program. We invite you to absorb the authors' thinking, reflect on how it clarifies issues in your own work, and consider applying or referring a colleague to join the next FDCE cohort. We're accepting applications here through March 13.

As a rural state with aggressive clean energy goals, Maine can set an example for clean energy adoption across the United States. This proves true in energy resilience as well as in the clean energy transition. Battery storage systems and virtual power plants offer an opportunity for individual ratepayers to improve energy reliability and contribute to Maine’s clean energy goals. Maine has several options for protecting and incentivizing ratepayers, especially low-income ratepayers, to own battery storage systems and join virtual power plant programs. 

Poor Reliability & Dependence on Dirty, Uneconomical Peakers 

Maine is a largely rural, densely forested state. Its highly dispersed electric grid is vulnerable to fallen trees. As a result, residents – especially lower-income rural residents – suffer the nation’s highest frequency of power outages, with an average of 3.9 outages per year for each customer. Maine also ranks 2nd on the list of longest average outage duration, with over 14 hours of downtime per year per customer.
The ISO-New England grid operator relies on a fleet of expensive peaker plants that emit too many greenhouse gases. Uneconomical during moderate demand periods, these plants are maintained to be ready for infrequent periods of high demand during heat waves or cold spells. Maine’s two least-used power plants, both fossil-fueled, produced less than 3.5% of the electricity generated in Maine from 2018-2020. The cost of keeping these plants in reserve for a few days’ use is passed on to ratepayers, increasing energy costs for all customers.  

Customer-owned Battery Storage as a Solution 

Customer-owned battery storage systems offer benefits at multiple scales:  
1) improving customer experience with backup power during grid outages;  
2) reducing the cost of electricity for all ratepayers by decreasing reliance on expensive peaker plants; and 
3) reducing greenhouse gas emissions by expanding the grid’s capacity to absorb renewable energy and mitigate intermittency.  
These benefits can work optimally when many customer-owned batteries are managed in aggregate. A “virtual power plant” (VPP) consisting of centrally managed customer-owned batteries enables an operator to plan for upcoming weather conditions and optimize for reliability, cost, and emissions reduction. An obvious drawback to VPPs is the hesitancy of battery owners to allow another party to control their systems. However, the high upfront cost of batteries presents an opportunity to incentivize participation in managed VPP programs. 

Policy Design and Implementation 

Legislation enacted in 2021 (LD 528) instructs Efficiency Maine to develop incentives that lead to 300MW of battery storage capacity installed in Maine by 2025. While not calling explicitly for VPPs, the law emphasizes the benefits of aggregated actions by customer-owned batteries for reductions in peak demand, cost, and emissions. If this 300 MW storage capacity is coordinated as a VPP, at least one natural gas peaker plant could go offline in less than five years. To drive greater coordination and optimization, Maine has several options for protecting and incentivizing ratepayers, especially low-income ratepayers, to purchase battery storage systems and participate in virtual power plant programs: 
1. Incentivize participation in VPPs. In exchange for deep subsidies toward the purchase and installation of battery systems, owners allow an operator to manage the battery to optimize for grid reliability, low cost, and emissions reduction. The program should allow customers to bring their own battery device or lease a battery. Green Mountain Power in Vermont offers both options. The lease option should provide free installation and allow participants to own the system after ten years of subsidized lease payments, as Holy Cross Energy does in Colorado. In both options, participants enter long-term commitments to the VPP program. 
2. Assure battery owners’ energy security. Battery owners should be able to decide how much of their battery’s capacity the VPP operator can manage and how much is kept in reserve for outages. Green Mountain Power’s bring your own device program offers owners a one-time payment of $850-$1050 for each kW of capacity (up to $10,500) that the owner authorizes the utility to manage. Tesla’s VPP program in California allows the owner to adjust the reserve capacity at any time via an app. 
3. Direct the PUC to develop dynamic pricing: As VPP programs increase grid reliability, there may be a tendency for individual battery owners to discount the value of participation. At the same time, as the share of intermittent renewables rises on the grid, there will be greater need for load shifting (encouraging energy consumption when electricity supply is high) and peak shaving (discouraging energy consumption when electricity demand is high) capacity. This need can translate to increased payments to battery owners who provide power back to the grid, which are incentives to remain in the program. If the value of those payments rises over time, then the program has a likelihood of maintaining support among early participants and gaining new support over time. As time-of-use and dynamic pricing policies emerge alongside the VPP program, ratepayers who consider exiting the program would face increased energy bills for times when they might formerly have relied on their battery system to avoid peak charges. 
4. Benefit vulnerable communities first: The first 70MW of battery storage should flow to a pilot program for rural, low-income communities, who are often last to benefit from new technologies. The 70MW pilot will provide reliability and resilience for at least 5,500 low-income households in Maine, assuming certain straightforward installation decisions. For these residents, home battery systems can improve reliability, offsetting utilities’ cost of burying long stretches of powerlines. In addition to deeper subsidies for upfront costs, volumetric adder payments during high demand can decrease energy burdens for low-income households. 
In conclusion, Maine already has many of the pieces to enable a clean energy future. Combining customer-owned battery storage systems, virtual power plant management, and a low-income pilot would have significant benefits for Maine’s utilities, customers, and clean energy goals.