California's prosperous virtual power station program encounters significant funding reductions
California's Demand Side Grid Support (DSGS) Program Faces Funding Cuts in the United States
The Demand Side Grid Support (DSGS) program, a successful initiative that has been instrumental in reducing peak grid demands in the USA, is facing a potential crisis as funding cuts loom.
The program, which began as an experimental response to a grid reliability crisis three years ago, has seen significant growth, with 800 megawatts of capacity ready to participate in reducing peak grid demands this summer. This is a significant increase from the over 500 megawatts enrolled last fall.
The DSGS program boasts hundreds of thousands of smart thermostats, batteries, grid-responsive EV chargers, and other distributed energy resources. Notably, it allows solar-charged batteries to inject their power back into the grid, a feature that sets it apart from most other programs in the United States.
Companies participating in the DSGS program offer up-front incentives and performance payments to customers. Sunrun, the leading residential solar and battery installer in the USA, has enlisted 56,000 customers capable of providing 250 megawatts of electricity to the program.
Sunrun's "CalReady" virtual power plant can send power back to the grid, doubling its impact on relieving grid stress. The most popular option for participants in the DSGS program is its battery storage virtual power plant, which dispatches batteries on days when the day-ahead price of power on the state's wholesale energy market exceeds $200 per megawatt-hour.
The program provides energy during times of emergency pricing, which can be the most expensive energy purchased. It also pays electric customers to reduce their energy use or provide power to the larger grid during extreme events. This feature can provide hundreds of megawatts of grid relief, helping California avoid rolling blackouts on hot days.
However, the state's budget crisis is causing these funding cuts to the DSGS program. The cuts include future funding promised in 2024, including $75 million from the state's Greenhouse Gas Reduction Fund and $46.6 million from the climate bond passed late last year.
If the cuts are left in place, the DSGS program will have about $64 million for the fiscal year that starts in July. A June 3 letter was sent to state lawmakers asking for existing funding to be preserved to allow companies to continue investing in market development and customer onboarding.
Without continued funding, the long-term viability of the DSGS program is uncertain, potentially affecting the state's grid reliability. Companies paying customers for this grid service consider DSGS a good deal, with $17 million in incentives paid and $82 million remaining for future spending.
As the state Legislature must pass a budget bill by June 15, it remains to be seen whether the DSGS program will continue to play a crucial role in California's energy future. There are no specific publicly available details about which companies have committed to continuing financial investments to support market development and customer enrollment for the DSGS program in California in 2026.
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