California Is Building the Biggest Virtual Power Plant in the World

Governor Newsom and the California Legislature created a program to help avoid power outages while reducing rates. The California Energy Commission's design taps into customer-sited batteries across the state in a program that promises to lead globally-if California supports it with long-term funding.

SACRAMENTO-In the final weeks of the 2025 California Legislative session, among the important issues still up in the air is whether California will fund the innovative Demand Side Grid Support (DSGS) program to ensure its success and secure its position as the largest virtual power plant (VPP) in the world.

"Governor Newsom and the whole state should be proud of this world-leading program to avoid blackouts while saving money," said Kate Unger, senior policy advisor for the California Solar & Storage Association.

DSGS was created in 2022 through AB 205 as part of Governor Newsom's and the Legislature's efforts to address the need for new emergency reliability resources to shore up California's grid. The Governor and Legislature took this wise step in the wake of the grid emergencies in 2020 and 2022-the first of which resulted in actual blackouts, and the second of which resulted in extremely close calls and required last-ditch efforts like a California Governor's Office of Emergency Services cell phone alert asking residents to conserve power on September 6, 2022.[1]

One of DSGS's signature success stories is its program option for behind-the-meter batteries participating in VPP fleets. A newly released assessment of the battery VPP option by the Brattle Group concludes that it can provide significant cost savings to California.[2] Every dollar put into the program results in up to two dollars in customer rate reduction.

The DSGS battery VPP has exceeded expectations of enrollment growth. Launched just over two years ago in August 2023, it already has over 720 megawatts of customer battery capacity enrolled. The Brattle Group predicts that if DSGS is funded and continues, the battery VPP option can grow to 1,300 MW in the next three years.[3] CALSSA believes this to be the largest VPP in the world.

DSGS recognizes that customer batteries can reliably respond to energy shortages and compensating them for doing so can cost less than other alternatives. The DSGS battery VPP option pays for capacity actually delivered. Its compensation rate is less than the cost of new incremental Resource Adequacy (RA) capacity-and RA capacity costs have been climbing at an accelerating rate.[4] DSGS is also less costly and less polluting than natural gas power plants whose lives have been extended as reliability capacity at a cost of up to $1.2 billion.[5]

In addition to being more affordable than other options for capacity, DSGS also helps avoid blackouts that are devastating to our economy. While California has managed to avoid similar grid emergencies since 2022, the accelerating impacts of climate change mean that grid reliability will continue to be a top priority for our state, and DSGS continues to be the smart reliability solution.

"Governor Newsom's foresight in creating this program will be amplified if the state establishes a long-term funding mechanism," said Brad Heavner, executive director of the California Solar & Storage Association. "This can be a shining example for the world if the structure is solidified."

[1] https://news.caloes.ca.gov/state-officials-sent-cell-phone-alerts-to-protect-public-safety-amidst-ongoing-record-heat-energy-grid-shortfalls/. Governor Newsom also issued a Proclamation of a State of Emergency on August 31, 2022. https://www.gov.ca.gov/wp-content/uploads/2022/08/8.31.22-Heat-Proclamation.pdf.

[2] https://www.brattle.com/wp-content/uploads/2025/08/The-Demand-Side-Grid-Support-Program-An-Assessment-of-Scale-and-Value.pdf. The Brattle Group report includes only energy and capacity value, and DSGS can provide additional sources of value, including avoided transmission and distribution infrastructure costs, adding to the benefit-cost ratio.

[3] https://www.brattle.com/wp-content/uploads/2025/08/The-Demand-Side-Grid-Support-Program-An-Assessment-of-Scale-and-Value.pdf. The program has seen dramatic growth just from May to August this year and is now about 3 times the capacity enrolled in 2024. https://dsgs.olivineinc.com/faq/#program.

[4] 2023 Resource Adequacy Report, California Public Utilities Commission, August 2025, pages 25-29. https://www.cpuc.ca.gov/-/media/cpuc-website/divisions/energy-division/documents/resource-adequacy-homepage/2023-resource-adequacy-reportv2.pdf.

[5] https://calmatters.org/environment/2023/08/southern-california-natural-gas-plants-remain-open/.