Two years ago, California committed $6.7 billion in state funding to protect the grid against the risk of heatwave-driven blackouts. Most of the money was directed at paying for fossil-fueled power plants and backup generators that don’t fit into the state’s clean energy plans.

Now, as California grapples with a budget shortfall, Governor Gavin Newsom and state lawmakers have proposed slashing hundreds of millions of dollars of funding for these cleaner alternatives — a move that could undermine one of the key avenues for distributed energy to gain traction in the state.

So say a group of distributed energy companies and advocates calling on state leaders to reverse the proposed cuts to the Demand Side Grid Support (DSGS) and Distributed Electricity Backup Assets (DEBA) programs. Both were put on the chopping block in the Newsom administration’s revised budget proposal last month, and those cuts were provisionally approved by lawmakers in the state’s Senate and Assembly appropriations committees last week.

“Given the critical importance of these programs for maintaining grid reliability to avoid dire energy shortages as well as for achieving our state’s climate goals, we urge you to protect the funding for the DSGS and DEBA programs,” the companies wrote in a May 28letter to state legislative leaders. ​“Investing in these programs is an investment in California’s clean energy future and our resilience against the growing threats of climate change.”

“Slashing funding for programs that prevent blackouts is beyond short-sighted — it’s a direct threat to our most vulnerable communities,” Edson Perez, California policy lead for clean energy industry trade group Advanced Energy United, said in a statement last week. ​“These two programs are our best shot at creating a resilient, clean energy grid. It would be wise for the Governor and legislative leaders to reverse these cuts before finalizing the budget on June 15.”

Perez was one of the signatories to last week’s letter, which included demand response and distributed energy companies CPower, Enel, EnergyHub, Engie North America, PowerFlex, Renew Home, and Voltus; solar and battery providers Generac, Lunar Energy, Sunrun, and Sunnova; backup-generator companies Enchanted Rock and Mainspring Energy; and solar and battery industry groups.

Many of these companies have invested money and time to pursue projects under these two programs, which were created in 2022 as part of a broader set of emergency measures proposed by Newsom and mandated by the passage of state law AB 205. ​“Cutting funds at this crucial juncture would not only disrupt these processes but also damage California’s reputation as a reliable partner for energy companies,” the letter said.

This has made the DSGS program a key target for VPP developers in California, with $295 million budgeted for participants in 2022 and 2023. About 1,300 participants in DSGS-funded programs were able to reduce peak load by about 315 megawatts and provide more than 3,100 megawatt-hours of emergency response during hot summer weather in the summer of 2022, according to the companies that signed on to the protest letter to state lawmakers. Those companies have planned to ​“provide much more emergency capacity in the summer of 2024.”

What’s on the chopping block 

Both DEBA and DSGS are administered by the California Energy Commission. The DEBAgrant program, meant to fund smaller-scale battery storage, has yet to be formally launched. Under the proposed budget cuts, DEBA would see its previous $545 million budget slashed by $418 million, essentially halting any ongoing work, said Rachel McMahon, vice president of policy for the trade group California Energy Storage Association.

“This newly expanded and re-designed program was finally launching for a full summer in 2024,” Perez of Advanced Energy United told Canary Media in an email. But the proposed budget cuts would eliminate $186.5 million in DSGS funding through this year and next, leaving only $75 million deferred to 2025 and 2026, according to industry groups tracking the latest budget figures. That would ​“severely impact” participating companies’ efforts, since they ​“need to have predictability to invest in market development, customer onboarding, and program setup,” the letter stated.

The missing money for alternatives to fossil fuels

What’s more, these power plants take days to ramp up in advance of predicted grid emergencies and are much more expensive than the capacity that can be enlisted through the DSGS program, which consists of customers that can almost instantaneously reduce power use or commit battery power to helping the grid, Perez said.

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