California quietly guts ambitious virtual power plant bill

September 05, 2025 at 7:30 AM
Jeff St. John
www.canarymedia.com
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Three bills have advanced through the California Legislature that are meant to increase the use of virtual power plants as a way to rein in energy costs. While good news for utility customers, that welcomed progress comes with its own dose of bad news: The most ambitious proposals were stripped out of one of the…

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California quietly guts ambitious virtual power plantbill

Bills boosting solar, batteries, EVs, and smart thermostats to rein in California’s utility costs moved ahead —but the most innovative approaches werecut.

ByJeff St. John
5 September 2025

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    An ornate government building seen through a tree-lined walkway
    The California State Capitol in Sacramento (Allen J. Schaben / Los Angeles Times via Getty Images)
    Three bills have advanced through the California Legislature that are meant to increase the use of virtual power plants as away to rein in energy costs. While good news for utility customers, that welcomed progress comes with its own dose of bad news: The most ambitious proposals were stripped out of one of the bills in asecretive process inaccessible even to the bill’s author.
    Two of the bills,AB44andAB740, cleared akey legislative hurdle with only minor alterations that will not significantly reduce their impact, according to Edson Perez, who leads California legislative and political engagement for clean-energy trade group Advanced Energy United.
    ButSB541, the most pioneering of the three bills in question, was​“gutted” last week via an opaque legislative maneuver, Perez said. Those amendments stripped the bill of important provisions that would have required the state’s biggest utilities to provide data to enable them to build virtual power plants into their grid investment plans.
    Those provisions​“would have helped California get the most out of its existing grid while saving ratepayers billions,” Perez said.​“At atime of skyrocketing electricity bills and reliability challenges, California can’t afford to sideline tools that make the grid cleaner, more resilient, and more affordable.”
    California has the highest electricity rates in the nation outside of Hawaii. Virtual power plants, which stitch together distributed energy like rooftop solar, home batteries, and EVs, can’t solve that problem on their own. But they can certainly help: Anewreportfrom think tank GridLab and Kevala, agrid-data analytics startup found that California could cut energy costs for consumers by $3.7billion to $13.7billion in2030, compared to abase case, by using home batteries,EVchargers, and smart thermostats to avoid or defer costly upgrades to power lines and other infrastructure.
    The changes made toSB541will dramatically reduce the savings it could offer, according to Sen. Josh Becker, the Democrat who authored the bill and chair of the Senate energy committee.
    “We’re very disappointed,” hesaid.
    The bill still includes measures to spur utilities to expand their use of VPPs,​“so we can avoid overbuilding to meet the highest peaks in demand,” he said.​“But we’ve missed an opportunity to do so much more by focusing on the other half of the problem —all this spending on upgrading poles and wires that can be avoided if we take better advantage of distributed energy resources.”
    Becker said he didn’t know who was responsible for excising that portion of the bill or why they did it. The amendments were introduced during aprocess known as​“suspense,”during which the Legislature’s appropriations committees can amend or shelve bills with no debate or transparency into how changes are made or by whom. Last Friday’s process ended upculling more than aquarterof the686bills under consideration, including high-profile ones like aproposal tostreamline permitting for high-speed rail.
    “We’re pursuing every avenue to keep that language alive,” Becker said of the removed text. But there’s little time for lawmakers to secure revisions before Sept.12, the last day for the Legislature to pass bills thisyear.

How VPPs can help California’s grid

For ahandful of hours every year in California, often on the hottest days, electricity use soars beyond the usual day-to-day level and hits what’s known as peak demand. To meet these peaks, utilities have historically opted to build more power plants and power lines than they need on adaily basis —an expensive choice that is responsible for alarge portion of utility bills.
But California can reduce demand peaks and make abig dent in those costs by taking advantage of solar-charged batteries, smart thermostats,EVchargers, and other devices scattered across homes and businesses. Individual customers are compensated for allowing the rest of the grid to use their energy resources, but if done right, aVPP’s benefits outweigh those payments.
A2024analysisfrom The Brattle Group found that VPPs could shave about15% of California’s peak demand by2035, saving utility customers about $550million each year. Most of those savings would flow to those whose clean energy assets are enrolled in the programs, but customers at large would also see costs decline because utilities wouldn’t have to build as much infrastructure.
Californiabadly needs to cut those costs. Average residential electricity rates in the state increased47% from2019to2023and now stand at nearlytwice the national average, largely driven by the effort toprevent power lines from sparking deadly wildfires. Pressure to expand power grids toserve data centers,EVcharging, and home electrification is set to push rates higher still.
In the face of these rising costs,​“making better use of what’s already on the grid rather than building something from scratch is apretty important consideration,” said Ryan Hledik, aprincipal at Brattle and lead author of thestudy.
But California is not on track to meet itsVPPtargets. In2023, the California Energy Commission (CEC), acting to comply with alaw passed the previous year, set a​“load-shift” goal of7gigawatts by2030for the state. But theCEC’s Juneprogress reportfound that California’s demand-flexibility capacity barely grew over the past two years and remains at just over3.5gigawatts, or about half the2030goal.
The state isn’t likely to reach its7-GWtarget under​“business-as-usual” conditions, theCECreport found. That’s especially true if thepolicymakers decide to eliminate programscreated aftergrid emergencies in2020and2022, which have grown fastest in recent years compared to utility-managed VPPs. The report concludes that California needs​“additional near-term strategies” to close thegap.

The latest attempt to build VPPs into grid spending plans

SB541was designed to help fill thatgap.

  • Roofs of homes with black solar panels on top### California’s biggest virtual power plant may get afunding reprieve
  • ### As rooftop solar gets hammered, virtual power plants offer away forward
  • ### California’s successful virtual power plant program faces big budget cuts

    In particular, the bill was meant todo two main thingsto incorporate load flexibility into how California manages its grid costs, Becker explained: Track progress toward state goals and embed VPPs into how the state’s major utilities invest in their powergrids.
    The amended bill still requires the California Energy Commission to create regulations to track the progress toward the7-GWgoal by utilities, community energy providers, and other​“load-serving entities” supplying power to customers.​“We need to know which load-serving entities are doing agood job of it, and learn from the best practices,” Becker said.
    But the original version ofSB541also called on the California Public Utilities Commission to create regulations to require the state’s three major utilities to share data on their low-voltage distribution grids, and use that data to discover how VPPs can reduce the cost of managing that infrastructure. Last week’s amendments entirely cut this portion of thebill.
    Brad Heavner, executive director of the California Solar and Storage Association trade group, said that’s amissed opportunity. Today’s VPPs and demand-response programs are triggered to reduce pressure on the state’s transmission grid and generator fleets when energy demand exceeds supply, he said. In other words, they’re​“focused on times when we may not have enough energy statewide,” which is​“obviously important.”
    But as originally written,SB541would have required amore proactive approach that integrates VPPs into grid planning.
    “From an affordability perspective, most of the reason our rates have increased is due to utility overspending on the distribution grid,” he said.​“VPPprograms should be equally focused on using networked batteries to avoid the cost of expanding substations and other big infrastructure.”
    Getting utilities to do this has been alongtime challenge. For more than adecade, California regulators have beenunder state mandate to press utilitiesto integrate rooftop solar, batteries, and other distributed energy resources —DERs in industry parlance —into how they invest in and manage theirgrids.
    But as Hledik told aCalifornia Assembly committee in July in testimony supportingSB541,​“attempts to use load flexibility as adistribution system resource have had limited success.” Existing programs aimed at requiring utilities to seek out DERs that canreplace or defer grid investments have failedto result in any significant projects.
    SB541was designed to overcome those previous pitfalls, Hledik said, by requiring that​“load flexibility opportunities be considered earlier and more comprehensively in distribution planning.”
    The otherVPPbills don’t take on distribution grid costs.AB740would require theCECto adopt avirtual power plant deployment plan by November2026, in collaboration with state grid operatorCAISO, the utilities commission, and an advisory group representing disadvantaged communities.
    ”It doesn’t require them to implement anything specifically,” said Perez of Advanced Energy United.​“But it does require that cross-agency deep dive that is just not happening rightnow.”
    AB44, which Advanced Energy United also supports, is​“more surgical,” Perez said. It would order theCECto adopt amethod to value VPPs as ameans of reducing​“resource adequacy” requirements —the calculation of the grid resources needed to meet peak demand in future years.
    Resource adequacy costs are rising across California. Ahandful ofcommunity choice aggregators(CCAs), the city- and county-level entities thatprocure clean energyfor agrowing number of the customers of California’s big three utilities, haveworked withCECto prove that their VPPsfunction well enough to count toward resource adequacy. TheCEChas then reduced their requirements accordingly, which has allowed CCAs to cut their customers’ energy bills.
    That’s auseful route to capturing the value of VPPs, Perez said. But it’s largely been done on an ad-hoc basis to date, and​“there’s no clear process” for other CCAs to follow suit, he explained.​“AB44tries to make that process more transparent.”
    None of the bills have passed yet. If they can clear the Legislature by mid-September, Gov. Gavin Newsom (D) will have until Oct.12to sign the legislation intolaw.
    This isn’t state lawmakers’ first attempt to passVPPbills.
    Similar effortsfailed to advancein last year’s legislative session, as did bills aimed at restricting utility spending. Utilities earn guaranteed profits for every dollar they spend on power grids and other capital infrastructure, which incentivizes them to resistVPPpolicies that might reduce those expenses —and California’s utilities have political heft in state government.
    But Becker, who is alsopushing legislation to offset utility spendingthrough public financing in this year’s legislative session, said the state’s utilities are alreadystruggling to expand their gridsquickly enough to serve large new customers likeEVcharging depots and data centers.
    In other words, they can’t spend money fast enough to build the grid that’s needed right now.​“We’re just trying to align the rules of the game to reward good behavior,” hesaid.
  • Virtual power plants
  • Distributed energy resources
  • Policy&regulation
  • West
  • California
    [Jeff St. John](https://www.canarymedia.com/about/people/jeff-st-john)is chief reporter and policy specialist at Canary Media. He covers innovative grid technologies, rooftop solar and batteries, clean hydrogen, EV charging, and more.
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