California Leaves Premier Virtual Power Plant Program Without New Funding, Putting Home Battery Payouts in Jeopardy

California’s most visible effort to turn home batteries and smart appliances into a collective power resource is running on empty. State lawmakers ended this year’s budget cycle without earmarking fresh funding for the Demand Side Grid Support program, known as DSGS, leaving the compensation structure that has paid thousands of households for grid relief in limbo.

DSGS connects distributed energy equipment — including home storage units, smart thermostats, and other flexible devices — so residents can be paid for easing strain on California’s grid. Participants either consume less electricity during peak periods or push power stored in batteries back into the system. Since its launch in 2022, it has grown into one of the largest virtual power plants in the United States, with enrollment around 130,000 battery-backed homes and roughly 75,000 more households using thermostats and flexible-load technologies, as Canary Media reported.

The final state budget, however, contained no new money for the program, as Canary Media reported. Lawmakers also declined to adopt Gov. Gavin Newsom’s proposal to shift DSGS from the California Energy Commission to the Public Utilities Commission — a change his administration argued would give it stronger footing for long-term supervision. Because DSGS remains with the energy commission, supporters say there is still an opening to protect it or restore funding in a future round of state action. The next governor and state lawmakers could still revive DSGS or create a similar stream.

In a July 2025 test, the program delivered about 476 megawatts of capacity over a two-hour period. Pacific Gas & Electric called it “the largest test of its kind ever done in California and maybe the world.” Brandon García, California policy director at Advanced Energy United, said DSGS has contributed more than a gigawatt of combined capacity to help keep the grid balanced.

The budget outcome leaves the program’s near-term future uncertain. “There is no guaranteed funding for the program for next year,” García said. “At the very least it wasn’t outright gutted.” His mixed assessment was echoed by the office of Democratic state Sen. Josh Becker, where a spokesperson said the $70 million sought for DSGS over the next two years “was not agreed on” in final budget talks. The spokesperson added that keeping the program with the commission “does allow us an opportunity to take this issue up early next year, potentially with a new administration.” García was more blunt about the near-term reality: “We don’t anticipate there being any more money for this program.”

Without a steadier revenue signal, companies such as Sunrun, Tesla, Leap, and Renew Home may find it harder to keep paying customers for demand-reduction and battery-discharge events. DSGS has effectively become a customer-acquisition and incentive tool for the residential flexibility market, and an interruption could dampen near-term enrollment.

The funding fight in California comes as distributed energy programs gain momentum elsewhere. In Puerto Rico, sonnen is expanding the first virtual power plant built around home batteries. In California, one of the largest solar farms now pairs with battery storage. In San Diego, developers recently completed one of the region’s biggest battery storage projects.

For households, the stakes are practical as well as strategic. Batteries, smart thermostats, and flexible appliances can lower monthly energy costs and provide backup during emergencies, but wider adoption often hinges on supportive policy. If state leaders want a clean grid that is also reliable and affordable, advocates say, proven efforts like DSGS cannot be left without clear backing as more renewables come online.