September 3, 2025
About two and a half years ago, Leap proposed reforms to the California Energy Commission (CEC) newly-created Demand Side Grid Support (DSGS) program. Our goal was to create a new demand response (DR) payment option that would incentivize the thousands of dormant batteries in Californian’s homes and garages to supply power to the grid during periods of exceptionally high demand. If designed correctly, we knew the program could attract hundreds of megawatts of new carbon-free capacity.
The CEC agreed, implementing an adapted version of our proposal as Option 3, and Leap was one of the first providers to launch it at scale in 2023.
The results speak for themselves. This past July, batteries enrolled in DSGS Option 3 (including a number through the Leap platform) were dispatched in a two-hour test event, delivering over 500 MW of load reductions during the grid’s peak load.
In less than three years, the CEC built a capacity resource the size of a gas power plant, at a much faster speed and lower cost. PG&E called it “the largest test of its kind ever done in California — and maybe the world.” And it’s just getting started — the Brattle Group estimates that DSGS could reach 1.3 GW of capacity by 2028, delivering up to $206 million in benefits to Californians.
But it may never get there. Earlier this year, the California legislature passed a budget that eliminated almost $100 million that had been allocated to the program for 2025, leaving it with barely enough funding to run through the end of this year. Without a fresh infusion of funds, DSGS will likely not have the budget to continue into 2026, cutting the legs out from under one of the most promising virtual power plant (VPP) programs ever created.
Now a new opportunity has emerged to provide DSGS with longer-term funding via California’s cap-and-trade program, but legislators need to act quickly to make sure this program doesn’t go under just as it’s ramping up.
Keys To Success
DSGS Option 3’s rapid growth was driven by a number of features that Leap put forward in its initial proposal, which make the program uniquely well-designed for batteries:
Device-Level Data: Option 3 lets DR providers use data directly from batteries to settle event performance. This radically simplifies program enrollment, allowing DSGS participants to authorize data sharing with DR providers directly via their battery provider and avoiding the sclerotic utility authorization processes.
Smarter Baseline Measurement: Option 3’s prescriptive baseline simplifies performance measurement and provides an example of a baseline methodology that would allow batteries to respond to grid events on a more frequent basis.
Flexible Dispatch Durations: Option 3 allows batteries to sign up for either two-hour, three-hour, or four-hour dispatches, making participation accessible to residential systems that can’t meet the four-hour Resource Adequacy program requirement. As the July test showed, even a two-hour dispatch can provide a major grid benefit, clipping the highest point of the demand peak.
Export Compensation: Crucially, Option 3 compensates batteries for sending power back to the grid. Since many batteries can discharge far more than needed for onsite consumption, compensating exports unlocks two to three times more capacity while also encouraging new customers to enroll in the program.
Charting a New Course
The rapid growth of Option 3 — and the features that have made it a success — haven’t gone unnoticed. Leap is simultaneously working with the California Independent System Operator (CAISO) to develop regulatory changes that would expand device-level measurements and compensate battery exports to the wholesale market — changes that could mirror the success of DSGS Option 3 on a larger scale. However, these market reforms will not be in place for several years.
Without sustained funding, DSGS could shut down before those reforms arrive, erasing more than 500 MW of capacity and undoing years of customer engagement and education. Restarting participation later would be costly and slow, leaving the grid exposed to rising demand and climate-driven heatwaves.
That’s why Leap is fighting to keep DSGS alive on behalf of our partners. The industry needs this bridge; keeping Option 3 in place until CAISO’s new rules take effect is the only way to preserve customer participation and maintain a proven, low-cost capacity resource in the meantime. This is also critical to ensure other DSGS participation options — including a newly-added Option 4 for smart devices that Leap’s platform will support — have the opportunity to get off the ground.
The proposed amendment to California’s cap-and-trade bill is a major step in this direction. The proposal, which will need to be passed by September 12, would provide $70-90 million to DSGS over the next five years, enough to keep the program in place as California’s regulators work to incorporate Option 3’s design elements into their existing market framework. Leap is working hard to protect the program we helped create and the value it delivers to our partners, their customers, and the state of California.
