California set to cut funding for load-reducing distributed storage programme

Tesla and the solar and storage leasing company Sunrun, the two largest aggregators involved in the test, hired consultancy firm The Brattle Group to analyse the results.

DSGS has grown rapidly. As Hledik notes, “The scale that the program has reached is significant. It is 700MW of enrolled capacity with the potential to scale to over a GW in three years. That is a utility-scale resource.”

He continues, “I think sometimes when people think about VPPs, they still think of them as pilots, or just kind of this little activity that’s happening on the side, but not really impacting the grid. But if we’re talking about a GW resource, that is a significant scale.”

It is also important to note that the 700MW capacity was achieved in a relatively short amount of time.

Hledik highlights, “It reached that scale in under three years. And particularly when you think about the lead times associated with just getting gas turbines today, delays with transmission, and interconnection queues, it’s hard to build large resources quickly right now. I think the fact that this program has reached that scale relatively quickly is a pretty important takeaway, given some of the industry’s challenges today.”

DSGS was introduced in 2022 by the California Energy Commission (CEC). It compensates customers for discharging stored energy from domestic and commercial batteries during peak demand or grid stress. This strategy helps prevent expensive, polluting fossil fuel peaker plants, enhances energy affordability, and lowers the risk of rolling blackouts during heatwaves and wildfires.

Nevitt explains, “We have enrolled over 50,000 customers this year, but there are plenty more. It’s really just the tip of the iceberg. And we really see these kinds of grid-edge batteries all over the state. Sunrun installs a battery with every solar system we install.”

She continues, “DSGS is the largest virtual power plant in the country and probably the world, so it would be a real shame for California to step away from that leadership role.”

Earlier this year, Sunrun announced it had more than quadrupled the size of its California VPP, CalReady, from 2024.

The company utilises Tesla’s Powerwall 3, featuring a 13kwh energy capacity. Its built-in inverter boasts a solar-to-grid efficiency of 97.5%.

CalReady operates daily from 4 pm to 9 pm from May to October to support California’s grid.

Enrolled Sunrun customers earn up to US$150 per battery for sharing stored solar energy, while Sunrun earns revenue for battery dispatch.

Last year, CalReady provided customers with over US$1.5 million in total benefits, helping to cut energy costs, reduce pollution, and stabilise the grid for all users.

VPPs could help mitigate CAISO’s net peak, potentially decreasing the need for extra generation capacity and easing system stress during the evening load ramp-up.

Additionally, fair compensation for participation in DSGS is essentially built-in to the design of the programme.

“The participants in the program are only paid for measured output from their batteries. So if the batteries are degrading over time, then participants naturally would just be compensated less as a result of that,” Hledik says.

Of course, all of the programme’s benefits would be more or less meaningless if it were not funded and could not continue.

In January, the proposed California Climate Change and Environment budget appropriated “a significant amount of money,” according to Nevitt, to DSGS. In May, the budget was zeroed out, and then there was a US$18 million reversion.

Nevitt explains, “The June budget that passed basically leaves enough money for the DSGS programme to run this year through the 2025 season, which is May through October. CEC and the third-party administrator have basically said there will not be enough money to run it at scale next year.”

The future of the programme and other potential funding avenues are uncertain.

Hledik says, “Right now, the funding for the programme has been cut, and so the big question mark is whether there will be a new source of funding that will allow the programme to continue to scale.”

“What we’ve seen recently is that companies like Sunrun, for example, pair most of their solar rooftop installations with batteries, leading to significant growth in the baseline amount of batteries in California that could potentially enrol in the DSGS program. If we continue to see customers adopting batteries at that rate, that will establish a significant foundation for participation in the programme.”