California’s legislature and Gov. Newsom chose not to renew funding for its grid reliability and premier virtual power plant (VPP) program.
The decision risks ending the program altogether, according to Advanced Energy United, and may mean losing more than $200 million in energy cost savings for Californians and extending the state’s dependence on peaker plants to meet emergency power needs.
Though the Demand-Side, Grid-Support (DSGS) program is not save-all solution, the program helps deliver reliability during heatwaves and other high demand grid emergencies by coordinating clean distributed energy resources, such as batteries, solar and smart thermostats. This enables utilities to use existing resources at their disposal, and in turn helps avoid resorting to building new infrastructure.
Advocates previously hoped lawmakers would enable the DSGS program to expand by boosting its funding. But the program’s funding was whittled down throughout the budget’s drafts until the boost eventually became a cut to the tune of $18 million. The DSGS program is funded through California’s Greenhouse Gas Reduction Fund.
When Gov. Gavin Newsom approved the budget, he deferred decisions on most Greenhouse Gas Reduction Fund investments until later in the year. Lawmakers also deferred decisions on the Distributed Electricity Backup Assets (DEBA) program, which funds new distributed batteries and microgrids.
However, after deciding not to renew the DSGS program’s funding, Advanced Energy United said the program will run out of funding by the end of the year, rendering it unable to operate in 2026.
“Cutting DSGS is a huge missed opportunity and a major step backwards on enabling a more flexible, resilient, and affordable energy future,” said Leah Rubin Shen, managing director at Advanced Energy United in a statement. “This program is a proven success in keeping the lights on while saving ratepayers money.”
“Allowing it to disappear undermines progress on affordability and discourages further clean energy investments in California,” Rubin Shen said.
Last month a coalition led by Advanced Energy United sent a letter to Newsom urging the governor to fund the program. The coalition said the DSGS program needed at least $75 million to remain operative in 2026. The coalition said the $50 million allocated to DEBA through Proposition 4 must be appropriated this year for DEBA to get off the ground.
“Defunding or delaying either program at this crucial juncture would not only undermine affordability and reliability, but also damage California’s credibility as a reliable partner for the businesses driving clean energy forward at a time when we should be leveraging their innovation and investment,” the coalition said.
The DSGS program
The DSGS program was established in the wake of its blackout and near-blackout grid events in 2020 and 2022.
California has managed to avoid similar grid emergencies since then despite rising electric demand. During the summer of 2024, the California Energy Commission said the DSDG program helped stabilize California’s grid during four separate heatwaves. The VPP part of the program was called upon 16 times during summer 2024, and its non-combustion demand-response option activated one time.
As part of California’s Strategic Reliability Reserve, the DSGS program provides incentives for residents to reduce electricity usage or to send energy to the grid during periods of high electric demand. This compensation rate is less than the cost of new incremental resource adequacy capacity costs, which have been exponentially increasing over the past several years, according to the California Public Utilities Commission (CPUC).
The DSGS program leverages different resources to manage demand, offering four different enrollment options:
- Option 1: Emergency Dispatch
- Option 2: Market-Integrated Demand Response Incremental Capacity Pilot
- Option 3: Market-Aware Storage Virtual Power Plant Pilot
- Option 4: Emergency Load Flexibility Virtual Power Plant Pilot
The emergency dispatch option pays participants $2 for each kWh of incremental load reduction from their typical energy usage during DSGS dispatch events.
The DSGS program includes one of the largest VPPs in the world, with more than 200 MW in capacity, according to the California Energy Commission. Since its launch, the program has enrolled 720 MW of customer battery capacity, according to the California Solar Storage Association (CSSA).
The program’s battery VPP option could grow to 1,300 MW in the next three years if the program is funded and able to continue, according to a Brattle Group report commissioned by Sunrun and Tesla Energy, both of which are DSGS participants.
The Brattle report also said the DSGS program could provide up to $206 million in net cost savings to all Californians. Additionally, every dollar put into the DSGS program results in up to two dollars in customer rate reduction, according to CCSA.
A path forward
Edward Cazalet, CEO of TeMix and a former governor of California’s grid operator CAISO, helped show five years ago that dynamic pricing that incorporates several cost components can work on a single distribution circuit.
Cazalet, who participates in the Tesla VPP program, told pv magazine USA the VPP program would do a better job it had dynamic rates instead of its current time-of-use rates, “because then it would focus the charging at even lower prices and focus the discharging at even higher prices, particularly when the grid is stressed.”
With dynamic pricing in place, Cazalet said there’d be no benefits to the VPP programs. “What the VPP programs do is they take tax money and distribute it to customers, aggregators and VPP program monitors, and enrich them with very little benefit, if any, to the system.”
Last week, the California Public Utilities Commission ordered the state’s three major electric utilities to develop and offer to all customer classes demand flexibility rates. The order specifies that the prices must change at least hourly in response to the changing wholesale electricity cost and other factors.
The new rates are expected to reduce solar curtailment because when solar generation is high, wholesale electricity costs are lower. Customers who choose flexible rates will be able to shift some of their consumption to lower-cost hours when the sun is shining.
Even so, not all is lost for California’s VPPs.
California passed two VPP bills earlier this month that streamline how utilities use distributed energy resources (DERs) and implement VPP programs. The bills currently await Gov. Gavin Newsom’s signature.
Since lawmakers did not act on the DSGS program during this year’s session, Advanced Energy United said “the pressure is now on for the next session to produce meaningful results and close the policy gaps necessary to keep energy affordable and flexible enough to meet future needs.”
“Policymakers must act quickly in 2026 to keep DSGS alive and ensure affordable, reliable power for years to come,” Rubin Shen said.
(Also read: Newsom orders agencies to fast-track clean energy projects before federal tax credits expire)
This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: editors@pv-magazine.com.
By submitting this form you agree to pv magazine using your data for the purposes of publishing your comment.
Your personal data will only be disclosed or otherwise transmitted to third parties for the purposes of spam filtering or if this is necessary for technical maintenance of the website. Any other transfer to third parties will not take place unless this is justified on the basis of applicable data protection regulations or if pv magazine is legally obliged to do so.
You may revoke this consent at any time with effect for the future, in which case your personal data will be deleted immediately. Otherwise, your data will be deleted if pv magazine has processed your request or the purpose of data storage is fulfilled.
Further information on data privacy can be found in our Data Protection Policy.