California declines to fund its biggest virtual power plant

California Gov. Gavin Newsom’s administration has blocked an effort to keep the state’s most successful virtual power plant program funded through next year.

State budget language finalized last week does not authorize additional money for the Demand Side Grid Support program, one of the biggest VPPs in the country. Friday was the last day for bills to be published before being voted on by the Aug. 31 deadline for this year’s legislative session.

But that budget language also excluded a plan from Newsom, a Democrat, to shift control of the program from the California Energy Commission to the California Public Utilities Commission, which DSGS supporters feared could lead to it being dismantled entirely.

That means that while ​“there is no guaranteed funding for the program for next year, at the very least it wasn’t outright gutted,” said Brandon García, California policy director for Advance Energy United, a clean energy trade group that reported the outcome of the DSGS negotiations on Friday.

Newsom’s office did not immediately respond to a request for comment.

A spokesperson for Democratic state Sen. Josh Becker, a DSGS supporter and author of several virtual power plant bills that passed both houses of the legislature last week, confirmed that the $70 million ​“we were hoping to use for DSGS over the next couple of years was not agreed on” in the final budget bills. At the same time, leaving the program under control of the California Energy Commission ​“does allow us an opportunity to take this issue up early next year, potentially with a new administration,” the spokesperson said.

Still, that’s cold comfort for the companies participating in the program, which pays households and businesses willing to turn down power use or share solar power stored up in batteries at times when California’s grid is under stress.

Since it was launched in 2022, DSGS has grown to include around 130,000 homes equipped with batteries and nearly 75,000 homes with smart thermostats and flexible load devices. The performance of its rooftop solar–charged batteries has been particularly noteworthy; a July 2025 test yielded roughly 476 megawatts of grid capacity over two hours, in what utility Pacific Gas & Electric called ​“the largest test of its kind ever done in California — and maybe the world.”

All told, DSGS has brought online more than a gigawatt of collective capacity to relieve costly stresses on the state’s power grid, García said. 

Absent an intervention from lawmakers and California’s next governor sometime next year, ​“we don’t anticipate there being any more money for this program,” García said. 

And without secure funding, it’s unclear how companies like Sunrun, Tesla, Leap, Renew Home, and others participating in DSGS will be able to pay their customers to help the grid.

That’s unfortunate, because DSGS stands out in a state that’s largely failed to tap into its nation-leading supply of rooftop solar–charged batteries and electric vehicles as an alternative to utility investments in power plants and transmission lines, said Sachu Constantine, executive director of nonprofit advocacy group Vote Solar.

“We should pursue every avenue available to use these resources that customers and companies have already invested in, that are already providing invaluable resources for the grid,” he said.

Similar programs regulated by the CPUC and administered by utilities have largely failed to thrive. That includes the CPUC’s Emergency Load Reduction Program, another approach to enlisting customers to relieve grid stresses that was created alongside DSGS in response to California’s grid emergencies from 2020 to 2022.

Paying customers with solar-charged batteries, smart thermostats, and remote-controllable EV chargers can also help lower utility bills for residents who don’t have those devices.

That’s because a large portion of the costs being passed on to customers of California’s three major utilities, which now charge among the highest rates in the continental U.S., are driven by the need to pay for fossil-fueled power plants and invest in grid infrastructure to meet peaks in grid demand.

By cutting funding for DSGS, California may be undermining a more economical way to defer those costs ​“at a moment when utilities are earning record profits and bills are going up, reliability is in question, and we’re continuing to prop up old, outmoded resources that don’t make sense for the future,” Constantine said.

Despite the potential cost savings, DSGS had its budget cut in 2024 and 2025, and was allocated no money in Newsom’s January budget proposal, leaving it at risk of being unable to pay participants this year. Early this summer, lawmakers were able to negotiate a transfer of $27 million from another program to keep DSGS running through 2026, García told Canary Media.

But lawmakers couldn’t overcome opposition from the Newsom administration to secure funding to pay DSGS participants in 2027. The final budget bills drafted by the legislature on Friday failed to include a proposal from Senate Democrats that would have shifted $70 million from another California Energy Commission program to cover those costs.

“We’re incredibly disappointed the administration rejected the legislature’s proposal to fund DSGS. It’s baffling,” García said.

García warned that DSGS participants don’t have much time to wait. ​“Even if the next incoming administration wants to fund DSGS, if they wait until June, I don’t know how many participants will be around to enroll in that program,” he said.