Demand for electricity is growing in the United States, thanks largely to power-hungry AI data centers, electric cars and extreme weather.

Now, some utilities are turning to a short-term solution to reduce strain on the grid — a concept called virtual power plants.

These aren’t fixed generation facilities at all. They’re more of a network, usually managed by a local utility, that aggregates electricity from different sources like businesses or homes. Essentially, these customers give some energy back to the grid or help the utility balance supply and demand in other ways.

Marketplace’s Meghan McCarty Carino spoke with Daniel Cohan, professor of civil and environmental engineering at Rice University, about how virtual power plants often rely on technology in the home. But getting all those households to sign up may be the biggest challenge.

The following is an edited transcript of their conversation.

Daniel Cohan: We see utilities in different parts of the country turning to customers in different ways. Some of them are having their customers have adjustable thermostats where the company or the grid can control just how much the air conditioner or the heating is operating, and so be more flexible in the air conditioning and heating use. Others are looking to homes that have rooftop solar and battery systems that they can adjust how that rooftop solar energy gets sent back to the grid by adjusting the use of the batteries. Others are turning to smart vehicle chargers that instead of charging a vehicle right away can decide when to charge up a vehicle so that it’s charging at times that are easiest for the grid to supply.

Meghan McCarty Carino: And what are the advantages of virtual power plants?

Cohan: Well, the country faces a real challenge in that our power demand is growing very quickly. Our economy is growing, there’s increasing number of data centers and [artificial intelligence] operations, and all of this is driving up demand. At the same time, the main growing sources of supply in this country are wind and solar, which generate at specific times of the day that aren’t so controllable, and so there’s a need to have more control over when we get supply and being able to make our demand more flexible. And virtual power plants can be a quicker way to achieve that than building new large assets on the grid. It takes several years to build a new [natural gas] power plant or to build out new transmission infrastructure. So virtual power plants give companies a quicker and cheaper way to make a difference for the grid.

McCarty Carino: How easy or cheap is it to set these networks up compared to what you described?

Cohan: It can be cheaper, but it’s not necessarily easier. It can be cheaper because many of the actions that are taken can be win-win situations. They may save money. They may help homes become more efficient. The challenge, though, is that it requires thousands and thousands of people to participate. As hard as it is to get a new power plant approved, that’s one central place that’s making lots and lots of electricity. To get a virtual power plant to work, you need to get thousands, if not tens of thousands of customers, to agree to give you a little bit of control over their thermostat or over their electric car charger or their home battery and solar. And signing up lots of people is, is a really tough effort.

McCarty Carino: And what are the incentives for these individual energy users to contribute?

Cohan: So in most cases, the virtual power plant will offer customers some small amount of savings for agreeing to give up a bit of control over your thermostat under the most extreme weather conditions, and so it might be a saving on your monthly electricity bill or some other incentive. In other cases, it comes from making it cheaper for customers to buy that new product, if it’s a smart electric car charger, if it’s a more advanced thermostat, if it’s rooftop solar batteries, the company operating the virtual power plant might be able to give discounts or incentives to get customers to sign up tor those.

McCarty Carino: We’ve seen some states looking to establish virtual power plant programs. Why do you think there’s increasing interest by states in this technology now?

Cohan: Yeah, I think states are seeing huge costs as power demand is growing and it is becoming more expensive than before to build new gas power plants, to build transmission lines, and many of those projects are taking many years. And so if states want to find a more affordable way to balance variable supply with growing amounts of demand, virtual power plants can be one small piece of the solution to cutting those costs.

McCarty Carino: Yeah, you said they can be one small piece. To what extent can they help kind of address the growing demand from industries like data centers or, you know, from strain on our power systems from extreme climate events? How big a part can this play?

Cohan: Yeah, that’s a great question that the Department of Energy looked at two years ago in what’s known as a liftoff report. They said, what would it take to get liftoff, where we could have much greater use of virtual power plants? And what they found is that, in an optimistic scenario, we might be able to get 10 or 20% of peak power demand met by these virtual power plants. I would say it’s a wishful, optimistic case that would get us there. It would take lots of effort, and again, the toughest part of these is getting thousands, if not tens or hundreds of thousands of people, to sign up. So it would take lots of collective efforts all across the country to get to that sort of level. But that’s roughly the amount that could be achieved by these virtual power plants, would be handling 10 or 20% of the very highest peak levels of demand.

McCarty Carino: Many of the efforts we’ve talked about have been local, but I’m curious about the role of the federal government. I mean, obviously the Trump administration has had an emphasis on increasing fossil fuel energy. What is the potential role of the federal government here?

Cohan: Much of the equipment that’s needed for virtual power plants was incentivized by the Inflation Reduction Act, everything from heat pumps to solar panels to battery charging system, a range of efficiency devices, and so it remains to be seen, will those incentives that would have been a big force behind moving towards virtual power plants, will those stay or will the new administration and the new Congress take away some of those incentives?

More on this

According to the North Carolina Clean Energy Technology Center, 38 states and the District of Columbia have expressed interest or passed policies establishing virtual power plant programs.

Pacific Gas & Electric Co., a major utility in California, recently launched its own virtual power plant test program in the San Jose area and the Central Valley. It will run from summer to fall of this year — when temperatures are at their highest and energy demands usually peak.

An analysis from Climate Central found a 60% increase in heat season power outages across the U.S. in the last 10 years as the climate has warmed.