In the summer of 2022, California faced one of its most severe heat waves in history. The state’s power grid was stretched to its limits as temperatures soared, pushing energy demand to unprecedented levels. In response, the state government issued emergency text alerts to millions of residents, asking them to voluntarily reduce their energy consumption during peak hours. This call to action was met with an extraordinary response: households across the state turned off their air conditioners, unplugged non-essential appliances, and delayed charging their electric vehicles. As a result, energy demand decreased just enough to prevent widespread blackouts, showcasing the immense collective power of individual actions. 

However, this success also revealed a striking disparity. While a few large corporate energy consumers were paid substantial amounts to reduce their energy consumption, the millions of homeowners who played a crucial role in stabilizing the grid were not compensated at all. Is voluntary, altruistic energy reductions sufficient to avert future outages in a world where the energy supply and demand gap continues to widen? 

Fortunately, there is a glimpse of a more resilient future. A growing number of Californians have already begun to receive compensation for their contributions to grid stability. These individuals have partnered with innovative companies like OhmConnect, SunRun, Tesla, and others to participate in what is known as "virtual power plants" (VPPs).

Virtual Power Plants (VPPs)

A VPP aggregates and coordinates small-scale energy resources—such as thermostats, electric vehicles, home appliances, batteries, and solar panels—across thousands of homes and businesses. These aggregated resources can be flexibly managed to meet the grid's needs. For example, when the grid is overloaded, the VPP can automatically shift the timing of EV charging, or even dispatch energy from EVs back to the grid. This coordinated effort allows participants not only to contribute to grid stability but also to receive financial rewards for their role in preventing blackouts.

Enormous Yet Nascent VPP Market

The US Department of Energy estimates that between 2023 and 2030 ~140 GW worth of non-clean electricity will be retired. During the same period, electrification (e.g., proliferation of electric vehicles) will add ~60 GW of peak demand. Together this will create a ~200 GW peak supply-demand gap. Note that this DOE report, released in 2023, likely underestimated the increase in demand, as the full extent of additional electricity demand from AI data centers was not yet well understood at the time. The report also acknowledges that if the US was to go 100% clean energy, the gap would be even greater because solar and wind energy is inherently unstable.

How do we bridge this gap? One way is to build more power plants and to expand the grid, which, in order to supply 200 GW, could very well cost hundreds of billions of dollars. The other way is to deploy VPPs. The DOE aims for an additional 50-100 GW of VPPs (ie, 25-50% of the 200 GW gap) in the next few years. 

Meanwhile, according to China's "14th Five-Year Plan for the Modern Energy System”, the country expects demand-side response capabilities to grow to 5%-6% of peak electricity load by 2030. Similarly to the US, this corresponds to ~100 GW.

If we make reasonable assumptions about the peak electricity price and the number of hours per year of peak electricity demand, ~100 GW would correspond to an order of magnitude between $10 billion and $100 billion in annual electricity cost, in each country.

While the potential for VPPs is massive, current leaders in the VPP market demonstrate how nascent the sector is. For example, OhmConnect, the largest VPP operator in the U.S. focused on residential energy systems, has connected fewer than 300,000 households. This represents less than 0.25% of the 120 million households in the U.S. This is understandable, because after all the adoption of smart thermostats, electric vehicles, and home batteries, which collectively make VPPs possible, is a relatively recent phenomenon.

Crypto-Enabled VPPs

One helpful way to view VPPs is that they are marketplaces for energy. The supply side is households and their energy devices. The demand side is the grid. Like any marketplaces, VPPs have a network effect, and they need to reach a certain critical mass before they can become useful. And crypto is particularly good at bootstrapping the critical mass and ultimately accelerating the network effect.

More concretely, a VPP needs to aggregate enough smart thermostats, electric vehicles, and home batteries, before they have the capacity to stabilize the grid in a given region. For argument’s sake, a city with 100 KW of flexible energy supply may not be sufficient to stabilize the grid but the same city with 1,000 KW may. Furthermore, the more capacity a VPP is, the more interested the grid is in starting a conversation with them about giving them financial rewards which can ultimately be passed onto the households. Conceivably VPPs can reach the escape velocity faster with the help of crypto than through brute force. 

Alliance has funded multiple crypto x energy startups. The latest one is Starpower, a DePIN for VPPs. Just like Helium, they start off by selling their own smart home energy devices, and will eventually open the protocol to third-party manufacturers. Unlike most DePINs so far, where the supply side is only motivated by financial incentives, in Starpower the supply-side users will find those energy devices immediately useful for reducing their electricity bills. They have sold 20,000 devices so far.

We welcome more teams exploring this area or adjacent areas to apply to our program.