The decision places Minnesota among the roughly two dozen states that now operate or are in the process of developing their own virtual power plants, which leverage newer technologies like solar and battery storage as a way to reduce strain on the electrical grid.
But what exactly is a virtual power plant, how is it different from a standard power plant, and why are some of Minnesota’s biggest solar advocates criticizing Xcel’s plan?
Here’s what you need to know about the novel power plant program and how Minnesota’s version differs from other states.
Virtual power plants are a relatively new concept in which a series of separate power systems are linked together, usually through some kind of software, to act in unison as if they were a single power plant.
More and more people are installing rooftop solar or battery storage systems in their homes and offices, said Logan O’Grady, executive director of the Minnesota Solar Energy Industries Association. By bundling them together, he said, they can become a useful tool for utilities to manage times of peak demand, such as a hot day when everyone is running their air conditioning at full blast.
“One home with a Tesla Powerwall, that stored energy alone is not going to be that much,” O’Grady said. “But if you combine that with 12 other Tesla Powerwalls in the area, that’s going to have a much larger impact.”
A virtual power plant in California generated some 535 megawatts of power during an afternoon test last summer — enough electricity to cover half of San Francisco’s needs during peak demand.
The Xcel pilot, expected to come online in 2028, will operate differently. Its $430 million virtual power plant program will consist of a dispersed network of batteries owned by the utility instead of drawing on existing energy infrastructure. The company has yet to determine where exactly those batteries will be located, but the state utilities commission said they will be “sited closer to where people live and work, allowing the grid to be more flexible and resilient.”
The test of the California virtual power plant last year made it clear that these systems can notably reduce strain on the grid.
That’s the whole idea, Xcel Energy President Bria Shea told the Minnesota Star Tribune. “The batteries will perform when the grid needs them, that is during peak demand and when the system is stressed,” she said.
Environmentalists have generally supported virtual power plants for that very reason. If utilities are tapping solar systems or battery storage systems, they’re less likely to build and operate so-called peaker power plants, which is how utilities have traditionally mitigated high demand on the grid. Most peaker plants today burn natural gas, which releases pollution and contributes to global heating.
One of the project’s biggest benefits, Shea said, is it will help the company avoid the costly grid upgrades and long wait times associated with building larger power plants. The smaller battery systems, she said, can be more easily located inside of communities instead of requiring a large swath of land somewhere along a major transmission line.
Larger power plants typically get tougher scrutiny from regional grid operators, who are selective about connecting new projects to the already limited space on their grids. Using smaller battery systems, Shea said, could help mitigate some of those costs and those savings can be passed to ratepayers.
Because Xcel’s pilot will use batteries developed by the utility, it also means ratepayers will see those costs reflected in their bills.
That misses a key benefit of using virtual power plants, said O’Grady. Utilizing customer-owned assets means the utility doesn’t have to build anything and rates can stay lower as a result.
“Those assets already exist and are already paid for,” he said. “So why not leverage that, so that you’re not risking a heavy investment that rate payers have to pay for?”
Virtual power plants are defined by the networking of smaller power sources, said PUC Commissioner Hwikwon Ham, not necessarily by who owns the equipment. In the end, he added, Minnesotans will benefit from this project as energy demand grows.
Shea said customers will still benefit from any cost savings from shorter connection times and siting costs. She also said a program that relies on volunteers is too risky since customers could join and leave the program at their whim.
“We’re a regulated utility, and with that comes a direct responsibility to both customers and the Public Utilities Commission for how these assets perform,” she said. “So, our ownership allows tight coordination, faster response, you know, during times of system stress and clear lines of responsibility if something were to go wrong.”
© 2026 The Minnesota Star Tribune. Distributed by Tribune Content Agency, LLC.
