German utility RWE implemented the first known virtual power plant (VPP) in 2008, aggregating nine small hydroelectric plants for a total capacity of 8.6 megawatts. In general, a VPP pulls together many small components—like rooftop solar, home batteries, and smart thermostats—into a single coordinated power system. The system responds to grid needs on demand, whether by making stored energy available or reducing energy consumption by smart devices during peak hours.

VPPs had a moment in the mid-2010s, but market conditions and the technology weren’t quite aligned for them to take off. Electricity demand wasn’t high enough, and existing sources—coal, natural gas, nuclear, and renewables—met demand and kept prices stable. Additionally, despite the costs of hardware like solar panels and batteries falling, the software to link and manage these resources lagged behind, and there wasn’t much financial incentive for it to catch up.

But times have changed, and less than a decade later, the stars are aligning in VPPs’ favor. They’re hitting a deployment inflection point, and they could play a significant role in meeting energy demand over the next 5 to 10 years in a way that’s faster, cheaper, and greener than other solutions.

U.S. Electricity Demand Is Growing

Electricity demand in the United States is expected to grow 25 percent by 2030 due to data center buildouts, electric vehicles, manufacturing, and electrification, according to estimates from technology consultant ICF International.

At the same time, a host of bottlenecks are making it hard to expand the grid. There’s a backlog of at least three to five years on new gas turbines. Hundreds of gigawatts of renewables are languishing in interconnection queues, where there’s also a backlog of up to five years. On the delivery side, there’s a transformer shortage that could take up to five years to resolve, and a dearth of transmission lines. This all adds up to a long, slow process to add generation and delivery capacity, and it’s not getting faster anytime soon.

“Fueling electric vehicles, electric heat, and data centers solely from traditional approaches would increase rates that are already too high,” says Brad Heavner, the executive director of the California Solar & Storage Association.

Enter the vast network of resources that are already active and grid-connected—and the perfect storm of factors that make now the time to scale them. Adel Nasiri, a professor of electrical engineering at the University of South Carolina, says variability of loads from data centers and electric vehicles has increased, as has deployment of grid-scale batteries and storage. There are more distributed energy resources available than there were before, and the last decade has seen advances in grid management using autonomous controls.

At the heart of it all, though, is the technology that stores and dispatches electricity on demand: batteries.

Advances in Battery Technology

Over the past 10 years, battery prices have plummeted: The average lithium-ion battery pack price fell from US $715 per kilowatt-hour in 2014 to $115 per kWh in 2024. Their energy density has simultaneously increased thanks to a combination of materials advancements, design optimization of battery cells, and improvements in the packaging of battery systems, says Oliver Gross, a senior fellow in energy storage and electrification at automaker Stellantis.

The biggest improvements have come in batteries’ cathodes and electrolytes, with nickel-based cathodes starting to be used about a decade ago. “In many ways, the cathode limits the capacity of the battery, so by unlocking higher-capacity cathode materials, we have been able to take advantage of the intrinsic higher capacity of anode materials,” says Greg Less, the director of the University of Michigan’s Battery Lab.

Increasing the percentage of nickel in the cathode (relative to other metals) increases energy density because nickel can hold more lithium per gram than materials like cobalt or manganese, exchanging more electrons and participating more fully in the redox reactions that move lithium in and out of the battery. The same goes for silicon, which has become more common in anodes. However, there’s a trade-off: These materials cause more structural instability during the battery’s cycling.

The anode and cathode are surrounded by a liquid electrolyte. The electrolyte has to be electrically and chemically stable when exposed to the anode and cathode in order to avoid safety hazards like thermal runaway or fires and rapid degradation. “The real revolution has been the breakthroughs in chemistry to make the electrolyte stable against more reactive cathode materials to get the energy density up,” says Gross. Chemical compound additives—many of them based on sulfur and boron chemistry—for the electrolyte help create stable layers between it and the anode and cathode materials. “They form these protective layers very early in the manufacturing process so that the cell stays stable throughout its life.”

These advances have primarily been made on electric vehicle batteries, which differ from grid-scale batteries in that EVs are often parked or idle, while grid batteries are constantly connected and need to be ready to transfer energy. However, Gross says, “the same approaches that got our energy density higher in EVs can also be applied to optimizing grid storage. The materials might be a little different, but the methodologies are the same.” The most popular cathode material for grid storage batteries at the moment is lithium iron phosphate, or LFP.

Thanks to these technical gains and dropping costs, a domino effect has been set in motion: The more batteries deployed, the cheaper they become, which fuels more deployment and creates positive feedback loops.

Regions that have experienced frequent blackouts—like parts of Texas, California, and Puerto Rico—are a prime market for home batteries. Texas-based Base Power, which raised $1 billion in Series C funding in October, installs batteries at customers’ homes and becomes their retail power provider, charging the batteries when excess wind or solar production makes prices cheap, and then selling that energy back to the grid when demand spikes.

There is, however, still room for improvement. For wider adoption, says Nasiri, “the installed battery cost needs to get under $100 per kWh for large VPP deployments.”

Improvements in VPP Software

The software infrastructure that once limited VPPs to pilot projects has matured into a robust digital backbone, making it feasible to operate VPPs at grid scale. Advances in AI are key: Many VPPs now use machine-learning algorithms to predict load flexibility, solar and battery output, customer behavior, and grid stress events. This improves the dependability of a VPP’s capacity, which was historically a major concern for grid operators.

While solar panels have advanced, VPPs have been held back by a lack of similar advancement in the needed software until recently.Sunrun

Cybersecurity and interoperability standards are still evolving. Interconnection processes and data visibility in many areas aren’t consistent, making it hard to monitor and coordinate distributed resources effectively. In short, while the technology and economics for VPPs are firmly in place, there’s work yet to be done aligning regulation, infrastructure, and market design.

On top of technical and cost constraints, VPPs have long been held back by regulations that prevented them from participating in energy markets like traditional generators. SolarEdge recently announced enrollment of more than 500 megawatt-hours of residential battery storage in its VPP programs. Tamara Sinensky, the company’s senior manager of grid services, says the biggest hurdle to achieving this milestone wasn’t technical—it was regulatory program design.

California’s Demand Side Grid Support (DSGS) program, launched in mid-2022, pays homes, businesses, and VPPs to reduce electricity use or discharge energy during grid emergencies. “We’ve seen a massive increase in our VPP enrollments primarily driven by the DSGS program,” says Sinensky. Similarly, Sunrun’s Northern California VPP delivered 535 megawatts of power from home-based batteries to the grid in July, and saw a 400 percent increase in VPP participation from last year.

FERC Order 2222, issued in 2020, requires regional grid operators to allow VPPs to sell power, reduce load, or provide grid services directly to wholesale market operators, and get paid the same market price as a traditional power plant for those services. However, many states and grid regions don’t yet have a process in place to comply with the FERC order. And because utilities profit from grid expansion and not VPP deployment, they’re not incentivized to integrate VPPs into their operations. Utilities “view customer batteries as competition,” says Heavner.

According to Nasiri, VPPs would have a meaningful impact on the grid if they achieve a penetration of 2 percent of the market’s peak power. “Larger penetration of up to 5 percent for up to 4 hours is required to have a meaningful capacity impact for grid planning and operation,” he says.

In other words, VPP operators have their work cut out for them in continuing to unlock the flexible capacity in homes, businesses, and EVs. Additional technical and policy advances could move VPPs from a niche reliability tool to a key power source and grid stabilizer for the energy tumult ahead.

For the last 12 weeks, California startup Rondo Energy has been operating what it’s calling the world’s largest thermal battery. Rondo’s system converts cheap renewable electricity into heat that can be discharged on demand into industrial processes.

This differs from most next-generation energy-storage strategies, which provide electricity to grids in the absence of sun or wind. Instead, Rondo’s system aims to help decarbonize emissions-heavy sectors like steelmaking and cement.

The system works like a toaster crossed with a blast furnace. Electricity from solar arrays heat iron wires similar to those in a toaster oven. These warm hundreds of tonnes of refractory bricks to temperatures up to 1,500 °C. After four to six hours of charging a day, the heat can be discharged as air or steam, without combustion or emissions.

To discharge heat, a circulating air blower is turned on, pushing air up through the brick stack and heating it to over 1,000 °C before releasing it through an outlet. The heat-delivery rate can be controlled by adjusting the airflow. The battery can discharge steam instead of heat by injecting water into an attached chamber, which the heated air passes through before leaving the battery through the outlet.

The real challenge in thermal energy storage is not storing heat; it’s being able to charge rapidly and then deliver heat continuously at the same temperature, says John O’Donnell, Rondo Energy’s chief innovation officer. The structure of Rondo’s heat battery, which O’Donnell describes as “a 3D-checkerboard of brick and open chambers,” keeps temperatures uniform and enables rapid charging. “We can turn charging circuits on and off as fast as you can turn your toaster on and off,” O’Donnell says. “So we can be agile.”

In Rondo’s first project, its 100-megawatt-hour battery is supplying heat for an enhanced oil-recovery facility operated by Holmes Western Oil Corp. in Kern County, Calif. The battery, which is about the size of a small office building, is powered by an off-grid, 20-megawatt solar array built for this purpose. It converts the clean electricity into heat, and then generates steam that is injected into oil wells, heating the oil so that it thins out and flows more easily, increasing production.

Holmes Western Oil previously accomplished this with a gas-fired boiler. Cutting it will save Holmes just under 13,000 tonnes of CO₂ emissions annually while also lowering costs, according to Rondo. “Making steam for oil fields is the second largest portion of industrial heat in the state,” says O’Donnell.

Rondo’s choice to deploy its first commercial-scale, emissions-reducing battery for the extraction of a fossil fuel stirred some controversy. Critics argue that deploying clean tech to improve or prolong fossil fuel production is counterproductive.

Thermal Batteries for Clean Industrial Heat

Several other companies are developing thermal batteries with industrial heat applications. Antora Energy makes modular carbon-block heat batteries that can reach over 1,500 °C and are being deployed at pilot industrial sites. EnergyNest is doing early commercial installations of its concrete-based thermal modules, and is partnering with Siemens Energy to scale across Europe. Calectra’s ultrahigh-temperature systems are in the pilot phase, and EarthEn Energy launched its modular low-temperature heat batteries in July.

These companies are focused on heat because it’s central to producing staples such as steel, cement, food, and chemicals. Many of these manufacturing processes run continuously and maintain high temperatures for weeks or months at a time, ranging from 72 °C for pasteurizing milk to over 1,000 °C for making steel or cement.

The cheapest, most efficient way to produce consistent heat has long been with fossil fuels; nothing burns as slow and hot as coal or natural gas. Their energy density, reliability, and low cost have made them hard to replace. However, industrial heat accounts for about 18 percent of greenhouse gas emissions and more than 20 percent of global energy consumption. So innovators aiming to decarbonize these industrial sectors have their work cut out for them.

But solar power is getting cheaper. In 2024, California’s solar fields generated almost as much electricity as its gas plants. “Because of what the wind and solar industry have done, we now have intermittent grid prices that are cheaper than fuel in a lot of places in the world,” says O’Donnell. Some locations generate so much clean power that the grid can’t absorb it all, forcing negative electricity prices for a few hours a day.

How Can Thermal Batteries Scale?

Thermal batteries supplying heat face several challenges. In order for them to scale up, industrial customers must buy renewable electricity wholesale at times of day when it’s cheap, which requires dynamic real-time pricing. Many states only allow industrial customers to buy power at fixed daily rates. “We are really eager to see the regulatory framework get modernized,” O’Donnell says.

The price of natural gas plays a role, too. It’s relatively inexpensive in the United States, thanks to shale gas from fracking, but if its price increases due to exports or other factors, batteries like Rondo’s could become a cheaper source of heat. This is already the case in European countries such as Germany, where the price of natural gas has skyrocketed in the last three and a half years.

Plus, heat batteries could be difficult to integrate into existing industrial infrastructure. Not every facility has space for a battery the size of an office building and a dedicated solar array. The batteries’ high up-front costs and the fact that they’re still a largely unproven technology will make some would-be customers reluctant to give them a try.

Nonetheless, heat batteries like Rondo’s are a promising solution for decarbonizing the industrial sector. “The thermal-storage market is absolutely capable of accelerating to create meaningful impact,” says Blaine Collison, executive director of the Renewable Thermal Collaborative, a coalition focused on decarbonizing thermal energy. “When I look at some of the fundamental characteristics of the technology—relatively straightforward materials, ability to offtake renewable electricity, modularity—I see scale.”

This article was updated on October 31, 2025.