California withdraws financial support for the world's most expansive virtual power station
California's Largest Virtual Power Plants Programs Face Uncertain Future
California's energy landscape is undergoing a significant shift, but the future of two key programs designed to enhance grid reliability and support a resilient clean energy grid remains uncertain. The Demand Side Grid Support (DSGS) and Distributed Electricity Backup Assets (DEBA) programs, funded by Governor Gavin Newsom, were not renewed or had their funding cut before the new legislative session started in 2025.
The DSGS program, California's largest virtual power plant initiative, faced an $18 million funding cut, while the funding decisions for the DEBA program were deferred. These cuts pose a risk of ending these programs, which have been instrumental in coordinating distributed clean energy resources and batteries during heatwaves, thereby ensuring grid reliability.
The DSGS program, which is run by the California Energy Commission, offers compensation to customers, utilities, and/or aggregators for allowing their resources to be dispatched during grid stress. It currently has over one gigawatt of enrolled capacity, with about 750 MW being batteries. A test event in July saw over 500 MW of battery energy dispatched to the grid for two hours through the DSGS program.
The DEBA program, on the other hand, provides funding for backup power systems like batteries and generators during grid emergencies.
The reauthorization of the cap and trade program, the centerpiece of a sprawling energy package, did not include funding for these grid reliability programs. The cap and trade program was rebranded as 'cap and invest' in the bill passed by the legislature.
Advocates warn that defunding these programs could undermine grid reliability, increase reliance on fossil fuel peaker plants, and stall progress toward a resilient clean energy grid in California. Edson Perez, senior principal at Advanced Energy United, expressed disappointment that the grid reliability programs seemed to have been left out amid intense negotiations and budget constraints. He, however, expressed hope that legislators would find another way to fund the programs early next year.
Kate Unger, senior policy advisor for the California Solar and Storage Association, stated that there is a risk that DSGS providers and customers could participate in 2026 and not get paid if the programs are not funded.
The Brattle Group, commissioned by Sunrun and Tesla Energy, conducted a study concluding that the taxpayer-funded virtual power plant could save ratepayers $206 million between 2025 and 2028. The reality is that California has rapidly deployed thousands of new megawatts in recent years, making the grid more resilient than ever.
The energy package includes proposals aimed at reducing energy costs, expanding the Western grid, and codifying virtual power plants in long-term planning. A spokesperson for Newsom expressed that he is committed to building a more reliable, affordable, clean, and safe power grid for California's evolving needs in a hotter, drier climate.
The two programs, DSGS and DEBA, are still in limbo due to a $12 billion budget shortfall. The study by The Brattle Group highlights the potential economic benefits of the virtual power plant, but its future remains uncertain without funding.
