Canary Media reports that Assembly Bills 740 and 44 continue to advance with provisions to expand virtual power plant programs in California, while last-minute amendments stripped away key provisions from Senate Bill 541. United's Edson Perez warned that California can’t afford to sideline tools that make the grid cleaner, more resilient, and more affordable.
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 bills in a secretive process inaccessible even to the bill’s author.
Two of the bills, AB 44 and AB 740, cleared a key 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.
But SB 541, 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 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 a time of skyrocketing electricity bills and reliability challenges, California can’t afford to sideline tools that make the grid cleaner, more resilient, and more affordable.”
How VPPs can help California’s grid
For a handful 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 a daily basis — an expensive choice that is responsible for a large portion of utility bills.
But California can reduce demand peaks and make a big dent in those costs by taking advantage of solar-charged batteries, smart thermostats, EV chargers, 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, a VPP’s benefits outweigh those payments.
A 2024 analysis from The Brattle Group found that VPPs could shave about 15% of California’s peak demand by 2035, 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.
California badly needs to cut those costs. Average residential electricity rates in the state increased 47% from 2019 to 2023 and now stand at nearly twice the national average, largely driven by the effort to prevent power lines from sparking deadly wildfires. Pressure to expand power grids to serve data centers, EV charging, 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 a pretty important consideration,” said Ryan Hledik, a principal at Brattle and lead author of the study.
But California is not on track to meet its VPP targets. In 2023, the California Energy Commission (CEC), acting to comply with a law passed the previous year, set a “load-shift” goal of 7 gigawatts by 2030 for the state. But the CEC’s June progress report found that California’s demand-flexibility capacity barely grew over the past two years and remains at just over 3.5 gigawatts, or about half the 2030 goal.
The state isn’t likely to reach its 7-GW target under “business-as-usual” conditions, the CEC report found. That’s especially true if the policymakers decide to eliminate programs created after grid emergencies in 2020 and 2022, which have grown fastest in recent years compared to utility-managed VPPs. The report concludes that California needs “additional near-term strategies” to close the gap.
The latest attempt to build VPPs into grid spending plans
SB 541 was designed to help fill that gap.
In particular, the bill was meant to do two main things to 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 power grids.
The amended bill still requires the California Energy Commission to create regulations to track the progress toward the 7-GW goal by utilities, community energy providers, and other “load-serving entities” supplying power to customers. “We need to know which load-serving entities are doing a good job of it, and learn from the best practices,” Becker said.
The other VPP bills don’t take on distribution grid costs. AB 740 would require the CEC to adopt a virtual power plant deployment plan by November 2026, in collaboration with state grid operator CAISO, 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 right now.”
AB 44, which Advanced Energy United also supports, is “more surgical,” Perez said. It would order the CEC to adopt a method to value VPPs as a means 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. A handful of community choice aggregators (CCAs), the city- and county-level entities that procure clean energy for a growing number of the customers of California’s big three utilities, have worked with CEC to prove that their VPPs function well enough to count toward resource adequacy. The CEC has then reduced their requirements accordingly, which has allowed CCAs to cut their customers’ energy bills.
That’s a useful 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. “AB 44 tries to make that process more transparent.”
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