This story was originally published on Utility Dive. To receive daily news and insights, subscribe to our free daily Utility Dive newsletter.

Dive Brief:

• Xcel Energy must create a virtual power plant program that includes a performance-based compensation tariff for its Colorado customers by February, according to a bill signed May 22 by Gov. Jared Polis, D.

• The law also requires Xcel to upgrade its Colorado distribution system to support state and federal decarbonization goals, proactively invest in distribution infrastructure in capacity-constrained areas and take additional steps to streamline its grid interconnection process.

• The law will help “utilize the assets in the distribution system in the most efficient way” and is likely to “hasten [Colorado’s] transition from being just a [distributed] solar market to being a solar-plus-storage market,” said Chris Worley, senior director of policy for Sunrun.

Dive Insight:

Without mentioning Xcel Energy by name, the new law singles out “an investor-owned electric utility that serves 500,000 customers or more” in Colorado. The customer threshold excludes Colorado’s other investor-owned utility, Black Hills Energy, which provides electricity to a smaller number of customers, said Kevin Brehm, a manager in RMI’s carbon-free electricity practice.

Tom Plant, a commissioner on the Colorado Public Utilities Commission, pushed Xcel earlier this year to develop a VPP program that would launch a pilot in October and provide recommendations for full-scale deployment by November 2026. 

Though Xcel said Plant’s proposed timeline was too aggressive and Plant’s effort ran into procedural difficulties, the utility has been laying the groundwork for a Colorado VPP program and is “primed to move quickly” to roll it out, Brehm said.

The new law will align Colorado’s largest utility with smaller electric co-ops and power providers that have “taken a major shift in past few years to embrace the energy transition,” Brehm added, singling out Holy Cross Energy and Tri-State Generation and Transmission, a wholesale power co-op that serves 41 local utilities across the Mountain West. 

Colorado law requires transmission-owning utilities, including Xcel, Black Hills and Tri-State, to join an organized wholesale power market by 2030. 

“As wholesale market reforms occur, that will open up opportunities for these sorts of [VPP] programs outside of Xcel territory,” Worley said.

Recent sharp increases in near-term electricity demand growth expectations and renewables’ steadily increasing share of generation capacity have focused utilities’ attention on VPPs as “a solution to maintain reliability, support load growth and maintain affordability” that can be deployed faster than new transmission capacity or “deeper interconnection reform,” Brehm said.

Though Xcel’s Renewable Battery Connect program provides up to $800/kW upfront for enrolled residential storage assets, battery attachments with solar have been modest so far and the addition of a performance-based tariff will likely increase attachment rates, Worley said. He compared the potential impact to that of the ConnectedSolutions program available across much of New England.

“We think [the new law] is going to kick things into high gear from a distributed energy resource standpoint…and unlock the value of behind-the-meter systems,” he said.

The new law’s distribution provisions could reduce interconnection delays for new distributed resources in the fast-growing region north of Denver, Worley. Some customers are seeing delays longer than six months to interconnect new solar and battery systems, and Xcel has said it could be as long as two years before it can boost distribution capacity along two impacted feeder lines, he added.