A virtual power plant (VPP) is an interconnected system that aggregates distributed energy resources (DERs), such as rooftop solar panels paired with behind-the-meter batteries, electric vehicles (EVs) and chargers, electric water heaters, and smart buildings with advanced controls. Utilizing a software platform from the VPP provider, these resources manage electricity supply and demand to deliver utility-scale grid services comparable to those from traditional power plants. The Department of Energy’s (DOE) Loan Programs Office (LPO) is financing eligible VPP projects across the U.S. to enhance equitable clean energy access and strengthen the clean energy grid.

Unlike typical clean energy projects supported by LPO, VPPs are decentralized, featuring multiple DER deployment locations. Most LPO-funded projects are usually situated in a single location. Given the integrated nature of VPPs, ownership and control of the DERs may differ, with installations often using existing infrastructure and equipment sourced from suppliers not directly tied to the project. Various contractors, often small local businesses, typically handle the installation across different VPP sites.

Despite their distinct structure, VPP projects must still meet the same eligibility criteria as all other LPO-funded initiatives. A critical requirement is compliance with relevant federal laws, particularly labor laws enforced by the U.S. Department of Labor (DOL), including the Davis-Bacon Act (DBA).

Davis-Bacon Act (DBA) Regulations

Enacted in 1931, the DBA mandates that contractors and subcontractors on federally funded contracts exceeding $2,000 for constructing, altering, or repairing public buildings or works adhere to a minimum wage, known as the “prevailing wage.” This law requires weekly payments to laborers and mechanics and outlines conditions for employing apprentices on DBA-covered projects. All LPO financing programs, except the Tribal Energy Financing Program, must comply with DBA labor standards, which the DOL enforces.

DBA Requirements for VPPs

While VPP applicants undergo a comprehensive application process, they face unique challenges related to DBA compliance. VPP operators receiving LPO financing must prepare, certify, and submit weekly payroll reports to DOE for all laborers and mechanics engaged in construction at any work site funded by loan proceeds. Therefore, early in the application process, applicants should assess their contractor network for DBA compliance, which may necessitate adjustments to project locations and equipment strategies. Funded applicants may also need to provide DBA-related documentation to demonstrate compliance. DBA requirements apply during construction but not during operations.

Ensuring DBA Compliance for VPP Projects

During the Due Diligence phase, VPP operators should submit a list of contractors and the counties of work sites where laborers and mechanics will operate. Certified payrolls must be provided for any workers involved in construction after the financial close, regardless of their employment status with the loan recipient. If construction begins before the loan closes, applicants must amend contracts to include DBA clauses retroactively to the start of construction. This may also mean compensating workers to align with prevailing wage schedules. For projects starting prior to loan closure, prevailing wage rates should be established based on the execution date of the construction contract or the official start date of construction.

VPP operators must ensure contractors post the relevant wage determinations at all construction sites. At residential locations, suitable posting places include vehicles used to transport workers and equipment.

Under DBA, the DOE must submit a Semi-annual Labor Standard Enforcement Report to the DOL. Contractors are required to submit their reports by April 21 and October 21 following the reporting period, which can be emailed to DOE.

DBA Categorizations for Work Sites

The type of wage determination for DBA-covered work depends on the site's classification, which can be heavy, building, highway, or residential. VPP projects typically fit into the “Residential” or “Building” categories. Projects involving transmission system construction may require a “Heavy” determination, while work on roads or highways falls under a separate “Highway” category. LPO provides applicants with the appropriate categorization based on project details.

The Building construction category applies to structures exceeding four stories or those not containing housing units. It encompasses the construction of such structures and includes utility installations and incidental work. Distributed energy projects in commercial settings generally fall under this category. The Residential construction category pertains to single-family homes or apartment buildings of four stories or fewer and includes all related site work unless a local practice dictates otherwise. Many LPO projects for VPPs or residential energy systems fall into this classification.

Impact of DBA Rules on Employer Payment Practices

Borrowers from LPO must ensure that contractors pay all laborers and mechanics weekly for their direct work on the project, following the appropriate classifications. During the due diligence phase, applicants need to list subcontractors and construction counties. To maintain accurate reporting, utilizing electronic certified payroll software to generate weekly reports is recommended. Some electronic payroll systems can integrate uploads from various payroll applications, ensuring compatibility across different contractor systems. The DBA outlines certified payroll requirements in contract provisions.

For work done before loan application but included in the LPO-supported project, applicants must certify retroactive compliance before loan closure. The loan applicant is responsible for ongoing and retroactive compliance with all subcontractors, maintaining certified payrolls and related records for three years post-construction.

DBA Labor Classifications for VPP Projects

The following are DBA labor classifications applicable to VPP projects:

• Electrician
• Laborer (construction)
• Carpenter
• Operator of Power Equipment
• Roofers
• HVAC
• Plumber
• Ironworkers
• Welders
• Concrete finishers

LPO Support for VPP Project Compliance

LPO assists applicants throughout both the application and construction phases to clarify DBA compliance requirements and develop processes for adherence. LPO collaborates with applicants to identify the relevant wage determinations. Given the distributed nature of VPP projects, ensuring DBA compliance may involve site visits and employee interviews by DOE and DOL staff. However, due to the challenge of visiting every site, LPO coordinates appropriate verification processes tailored to each VPP project.