California Weighs Future of Virtual Power Plant Program That Pays 200,000 Households

More than 200,000 California households are enrolled in a statewide program that pays them to help stabilize the electric grid during periods of high demand. Participants, including Nancy Lipps and her son John Lipps in Dinuba, allow utilities to draw power from home batteries connected to solar panels or to adjust smart thermostats and EV chargers.

The arrangement provides the Lipps family with a $300 annual credit. John Lipps said the program gives back to neighbors and supports grid sustainability. The Demand-Side Grid Management program, launched in 2022 and administered by the California Energy Commission, taps an array of customer-owned devices to create what advocates describe as the world's largest virtual power plant.

It has generated more than one gigawatt of capacity at peak times, enough to supply San Francisco during high demand and comparable to the output of a nuclear power plant. The program has also reduced reliance on older gas-fired power plants. One energy expert noted that it supplies power at the moments when the grid is dirtiest and most expensive to operate.

Newsom has proposed stopping funding for the program after 2026 and transferring its customers to an existing California Public Utilities Commission initiative run by investor-owned utilities. The governor's office said the change builds on the current program's foundation, streamlines demand response efforts, reduces administrative overhead and simplifies options for customers who now face multiple competing programs.

A spokesperson for the governor's office stated that the proposal would ultimately lower costs for ratepayers. The California Energy Commission currently operates the highly subscribed program, which reaches every legislative district and sees the highest per capita participation in the lowest-income counties.

For the current year, Newsom has proposed adding $27 million in unspent funds from another energy reliability program. Combined with the program's existing $26.5 million budget, that would allow continued operation through the end of 2026, though at reduced capacity.

After that point, the program would have no remaining funds.

Officials from the state's Department of Finance told an April 29 Assembly budget committee hearing that the program was designed as a limited-time initiative and that the current budget climate cannot sustain additional appropriations. A Department of Finance budget analyst said the plan is to use existing resources and then move toward a more sustainable funding source.

The California Public Utilities Commission program, in operation since 2021, has generated a small fraction of the energy capacity of the Energy Commission effort while spending more on administrative costs, according to testimony at the hearing. The commission did not respond to a request for comment.

Its Public Advocate's Office declined to comment. Environmental groups and clean energy businesses have sent letters urging legislators to continue funding the existing program. Advocates have proposed extending the soon-to-expire school air conditioning program and directing its interest earnings to the demand response effort, which could sustain it through 2028.

At that point they hope the virtual power plant could sell power directly into the California energy market. A study commissioned by Sunrun and Tesla found that extending the program through 2028 could save the grid system $206 million after participant payments.

Lawmakers at a recent hearing questioned the decision to end a program that has produced substantial capacity in favor of one that has delivered less or has yet to be developed. Assemblymember Steve Bennett, chair of the budget subcommittee on climate and energy, said a significant percentage of Assembly members appear to favor keeping the funding with the California Energy Commission.

Newsom is scheduled to release a revised budget on Thursday. The program's future is expected to remain under negotiation until the state budget is finalized in July.