As Texas’ energy demand soars, a pilot program looks to bolster grid with “virtual power plants” fueled by people’s homes

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On sunny days in the Hill Country, Tom Cook taps open an app on his phone and watches the power generated from the solar panels on his roof flow to his home — and out to the state power grid.

Cook has a battery storage system on the side of his home in Bandera to power things during outages. The rest of the time, his retail electric provider sends power from his battery back to the grid.

In turn, he gets a monthly bill credit and a sense of community service in supporting the grid.

“We get the sun beaten down on us, and it’s good to have the sun pay us back,” Cook said.

Cook, 72, installed solar panels and a battery in September as part of a program offered by his retail electric provider, Bandera Electric Cooperative.

Along with Tesla, Bandera Electric, a small co-op based in the so-called Cowboy Capital of the world, qualified for a state pilot program to show how everyday Texans could participate directly in the wholesale power market.

The companies facilitate that participation by pulling together small energy resources spread across communities — like residential solar panels and batteries, smart thermostats and the batteries in electric vehicles — and funneling that extra power to the state grid when the Electric Reliability Council of Texas, the primary grid operator, signals a need for it.

The result is what’s called a “virtual power plant” — a burgeoning resource that, across the state, has the potential to send thousands of megawatts of energy back to the grid in moments of crisis.

“It’s just another tool in the toolbox for ERCOT to switch on and off,” Matthew Boms, executive director of the Texas Advanced Energy Business Alliance, said. “It gives us as much resources as a traditional power plant would, and those are technologies that a lot of folks in Texas are already using.”

Cook’s home is one of 34 currently enrolled in Bandera Electric’s virtual power plant, a small but growing collection of batteries that can offer the grid about 0.5 megawatts at a time.

Three virtual power plants — known as aggregated distributed energy resources, or ADERs — totaling 25.5 megawatts have been approved so far as part of the state’s pilot project. (ERCOT estimates that 1 megawatt of electricity can power around 250 homes.)

“We know that there are these resources out there in Texas homes, in Texas businesses,” said Amy Heart, senior vice president of policy at Sunrun, a home solar and battery company. “We know we need every electron to help this grid and to meet the soaring electricity demand.”

ERCOT has estimated that energy demand could nearly double by 2030 — a massive surge driven by population growth, increasingly severe weather in Texas, an influx of large commercial users such as data centers and cryptocurrency mines and the electrification of oil and gas operations.

In August, ERCOT appeared to hit a record demand level of 85.6 gigawatts. Last week, the grid operator predicted that in a worst case scenario, the grid may not have enough energy supply to meet peak demand beginning in summer 2026.

Meeting that demand will require new generation sources and more transmission infrastructure to carry that power around the state.

The Legislature’s recent efforts to add new natural gas-powered generation and to build out transmission lines will take years to develop. Pulling unused power from homes and businesses with battery storage and power-saving technology can put energy back on the grid immediately, boosting the grid’s resiliency and paying those customers for helping out.

Bandera Electric and Tesla are fine-tuning the way this can work through the state’s pilot project, and other electricity companies have created their own virtual power plants through so-called demand response programs — by lowering their customers’ energy use when demand is high.

Put together, experts estimate that there are several gigawatts of power in Texas waiting to be tapped into, sitting behind the meter in people’s homes and businesses. In 2023, the Public Utility Commission said they amounted to 2.3 gigawatts across the state. That number has certainly grown since.

A typical nuclear power plant produces 1 gigawatt of electricity, which can power roughly 250,000 homes.

Nationally, the amount of residential solar installed each year equals about seven or eight nuclear power plants, according to Heart. Smart thermostats already installed in Texas could offer the grid up to 2.6 gigawatts, according to Bandera Electric CEO Bill Hetherington.

“It’s a nuclear power plant — just thermostats,” he said. “The capacity is out there. We just have to harvest it.”

How does a virtual power plant work?

The state’s ADER pilot project began around three years ago with the goal of demonstrating how coordinated distributed energy resources — the technical name for devices that can send power back to the grid from homes and businesses — could integrate into the energy market as if they were a power plant or solar farm.

Traditionally, electricity is generated at a large scale — such as by power plants and hydroelectric dams — and transported through power lines to homes and businesses. But the expansion of residential solar, batteries and smart thermostats, Boms said, is “flipping that on its head.”

“We have this new technology that allows folks at the distributed level to generate their own electricity, and potentially sell that back to the market,” he said. “It’s a completely new model.”

That growth raises the question of how to coordinate all of those devices, energy consultant Doug Lewin said. “How do you make them contribute to grid reliability, lower costs for everybody — whether they have those resources or not? And that’s really what the pilot is starting to uncover.”

Bandera Electric’s program starts with Apolloware, a real-time energy management platform it developed to help customers control their energy usage. The smart technology monitors how much power a home and each of its devices is using.

Customers can then choose to install solar panels and lease a battery from Bandera Electric. Apolloware then allows the co-op to sell extra power from participating batteries back to the grid.

While people who participate in Bandera Electric’s virtual power plant currently receive a bill credit and favorable financing on their battery, the co-op is working toward a possible customer compensation program that could split profits made from selling extra energy to the grid, on top of the $40 monthly credit that customers receive for letting the co-op control their battery.

Other electric providers have launched demand response programs using smart devices to power virtual power plants in Texas.

NRG Energy and Renew Home, for instance, announced in November that they would develop a nearly 1 gigawatt virtual power plant in Texas by installing hundreds of thousands of smart thermostats across the state over the next decade. Those thermostats can automatically adjust HVAC systems to reduce customers’ energy demand when grid conditions are tight.

Similarly, when the grid is strained, Octopus Energy reaches into participating homes and temporarily pauses air conditioners and vehicle chargers. That allows the company to buy less power when energy prices are high and offer their customers discounts on their electricity bills.

“You’re really just modifying how customers use energy,” Nick Chaset, Octopus Energy’s executive vice president for North America, said. “We want to show that you don’t need as many of those power lines or those big backup power plants, because these distributed energy resources are reliable, and they’re going to show up.”

Last month, Solrite Energy announced a partnership with sonnen, a major solar and battery provider, to install residential solar and battery systems for free in Texas. Those systems will power a virtual power plant that can provide services to help stabilize the grid and sell energy in the ERCOT market.

What’s in store?

State regulators plan to look at how to expand participation in virtual power plants in Texas, how to standardize those programs across electric providers and whether any guidelines should be set on paying Texans for participating.

While large commercial users like crypto mines can earn millions of dollars from ERCOT for lowering their energy usage when grid conditions are tight, residential customers currently have no way to be paid by the market for their power, and instead generally receive bill credits through their electric providers.

“The reality is, we’re not going to be able to keep up” with power demand in Texas, Hetherington said. “The only way is to have a mechanism to reward people who, during times of crisis, actually do help the grid.”

In the meantime, though, more and more Texans are installing solar and storage systems, smart thermostats and other gadgets that could be enrolled in virtual power plants.

Terry Adams, a civil engineer who’s lived in Boerne outside San Antonio since 1989, installed a solar and battery system through Bandera Electric in July. The few times the power has gone out since, he didn’t notice.

“The oven — the clock on it didn’t even reset,” he said. His family knows that if there’s an outage, they can come to his ranch. After Hurricane Beryl knocked out power for millions in July, his son, who lives in Houston, came to stay with him.

“You’re getting not just your electricity, but you’re getting the backup system, and you’re selling electricity back to them when you over-produce,” Adams said. “You’re really helping everyone in the state.”

When Cook first put his solar panels up, his wife said they looked ugly.

“I said to her, that looks like money to me,” he said. “And that’s kind of how I feel about it: those panels up there, they are making money.”

He said he usually earns about $50 a month for the power he produces, and he saw his electric bill slashed by another $50 or so because his solar panels generate most of the electricity he needs.

“I’m not an environmental nut or anything, but I think we ought to do what we can,” he added. “This is a community service in a way, and it benefits me personally.”

Disclosure: Integrate, NRG Energy and Octopus Energy have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.