California’s biggest virtual power plant may get a funding reprieve

California’s premier ​“virtual power plant” program is already reducing the state’s reliance on polluting, costly fossil-fueled power plants. And that’s just the start of what the scattered network of solar and batteries could do to stymie rising utility costs — if the state Legislature can stave off funding cuts to the program, that is.

So finds a new analysis from consultancy The Brattle Group on the potential of the statewide Demand Side Grid Support (DSGS) program to help California’s stressed-out grid keep up with growing electricity demand. The program pays households and businesses that already own solar panels and batteries to send their stored-up clean power back to the grid during times of peak demand, like hot summer evenings.

Continuing the program’s payments to those customers to make their stored energy available could save all California utility customers anywhere from $28 million to $206 million over the next four years, the report found.

The findings come as state lawmakers attempt to rescue the DSGS program from a new round of funding cuts. Last year, California lawmakers slashed DSGS spending to deal with an unexpected budget shortfall. The situation is still troubled this year, and Democratic Gov. Gavin Newsom has proposed defunding the program further, leaving it little money to pay participants beyond this year.

But the program could regain its financial footing if newly introduced legislation becomes law.

Saving the program would be a win for reducing the state’s sky-high utility costs, according to Ryan Hledik, a principal at Brattle and coauthor of the report. ​“It’s cheaper to pay customers to provide grid resources from technology they’ve already adopted than it is to go invest capital in new stuff,” he said, including the fossil-fueled generators now used to meet peak grid needs.

California has already committed billions of dollars on emergency backup generators and on keeping aging fossil-gas-fired power plants open past their planned closure dates, he noted. The high end of the savings DSGS could provide is based on the assumption that it ​“would be a substitute for spending money on more expensive emergency resources,” he said. 

At the same time, DSGS could also bring down the ​“resource adequacy” payments shelled out by California utilities, community choice aggregators, and other power providers to secure enough grid resources to meet peak demand in future years. Those costs have been rising in California, though not as drastically as they have in other parts of the country.

Since its launch in 2023, the battery program Brattle analyzed, which is one of the four options for customers to participate in DSGS, has grown to a collective 700 megawatts of capacity. The report forecasts the program could nearly double its current capacity to reach 1.3 gigawatts by 2028, covering roughly half the total residential distributed-battery capacity expected to be online in the state by then.

That won’t happen without state funding for the program, however — and though some state lawmakers are attempting to save DSGS’s funding, it remains unclear if the money will be there for future years.

Relief on the way?

If Irwin’s proposed provision becomes law, it would supply roughly $70 million to $90 million per year to DSGS over the next five years, said Brad Heavner, executive director of the California Solar and Storage Association. DSGS needs at least $75 million this year to operate in 2026, according to a letter sent to California lawmakers on Tuesday by 35 companies, trade groups, and advocacy organizations active in solar, batteries, on-site generators, and demand response, including Heavner’s group.

The amount of funding dedicated under the proposed legislation ​“won’t be enough for all the program activity we expect — but it will be enough to have a core program,” he said.

DSGS’s cost-effectiveness, demonstrated by the Brattle analysis, should give lawmakers confidence that the money isn’t being wasted, Heavner said. ​“It’s great that the Brattle study finds there’s a two-for-one benefit — every dollar spent here saves two dollars” for utility customers across the state, he said.