By Mark Jaffe, EUCI energy writer
The virtual power plant (VPP) market grew by 13.7% year-over-year in 2025, reaching 37.5 gigawatts (GW) of capacity with an increase in company deployments, companies buying VPP energy credits, and utility-run programs, according to a Wood Mackenzie market report.
The 33% in the number of a participants in the market compared to the 13.7% increase in capacity was a sign of that the “VPP market broadened more than it deepened,” Wood Mackenzie said.
Caps on VPP programs by utilities, regulatory issues and market barriers “have prevented capacity from growing as fast as the market activity,” Ben Hertz-Shargel, global head of grid edge for Wood Mackenzie, said in a statement.
Still, growing electricity demand – the U.S. Energy Information Administration forecasts record loads in 2025 and 2026 – make VPPs a valuable tool in managing peak demands on the gird.
The rise in demand from data centers, especially hyperscale centers, is a major spur. “While data centers are the source of new load, there’s an enormous opportunity to tap VPPs as the new source of grid flexibility,” Hertz-Shargel said.
VPPs aggregate distributed energy resources, such as rooftop solar with behind-the-meter batteries, electric vehicles, electric water heaters, smart thermostats, and flexible commercial and industrial loads.
Managed by a utility or a commercial operator, the VPP can provide power or reduce demand on the grid during peak periods, in essence avoiding the need to build new generation or use expensive peaking plants.
“VPPs will be a key near-term solution to existing energy challenges, including rising costs, interconnection backlogs, peak demand increases, and distribution system congestion,” according to the U.S. Department of Energy.
Wood Mackenzie counted 1,940 North American virtual power plant deployments in 2025. Monetized VPP programs, which pay distributed energy resource owners to dispatch energy or curtail consumption, increased 35%, from 321 in 2024 to 433 this year.
The 25 largest entities buying VPP energy credits, known as “offtakers,” acquired more than 100 megawatts each.
“An ‘independent distributed power producer’ business model has emerged, whose thesis is that energy arbitrage and grid service revenue can finance an electricity retailer’s third-party-owned storage offering,” Wood Mackenzie said.
The share of VPP wholesale market capacity from residential customers increased to 10.2%, from 8.8% in 2024, a sign that there are still market barriers to small customers.
California, Texas, New York, and Massachusetts are the leading states, accounting for 37% of VPP deployments.
The regions with the biggest utility commitments to data centers – served by PJM Interconnection, the grid operator serving mid-Atlantic and Midwestern states, and the Electric Reliability Council of Texas – have the largest disclosed VPP offtake capacity.
In July, American Electric Power said its utilities expect to interconnect 18 gigawatts of data center capacity by 2030, primarily in ERCOT and PJM.
“This drives home the opportunity for utilities and even hyperscalers themselves to procure new VPP capacity to offset data center coincident peak demand, enabling faster grid connection,” Hertz-Shargel said.
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