California ISO: DSGS, VPP & DER Market Analysis: Current State and Future Outlook

California is North America's largest market for Virtual Power Plants (VPP), with 24% of all regional projects. Driven by an extensive deployment of behind-the-meter distributed energy resources (DER) like residential batteries and EVs, California Independent System Operator (CAISO) is evolving its regulatory and market frameworks to better integrate these assets. Programs such as Demand Side Grid Support (DSGS), the Distributed Energy Resource Provider (DERP) framework, and the Emergency Load Reduction Program (ELRP) provide revenue pathways, each with varying predictability and complexity.

This report provides a detailed analysis of CAISO's current VPP market, recent program participants such as Tesla, Sunrun, and OhmConnect, and the evolution of DSGS into performance-based pilots. It includes insights into future CAISO initiatives like Demand and Distributed Energy Market Integration (DDEMI) and Real-Time Load Bidding (RTLB), offering stakeholders strategic guidance on market participation and readiness.

Current Program Landscape and Active Participants

California's DER market is anchored by a patchwork of incentive programs and market access models:

1. Emergency Load Reduction Program (ELRP) - Administered by IOUs such as PG&E and SCE. Aggregators like Tesla enroll Powerwall customers, offering $2/kwh during grid emergencies. Revenue is variable depending on event frequency, ranging from negligible in calm years to ~$600/year per system during active seasons.

2. Distributed Energy Resource Provider (DERP) - Enables aggregators to bid into CAISO wholesale energy and ancillary service markets. Despite theoretical access to energy arbitrage and capacity payments, DERP participation requires significant technical capability, market literacy, and performance forecasting. Only one residential DERP aggregator has entered commercial operation via a CEC grant.

3. DSGS (Demand Side Grid Support Program) - Launched under AB 205/AB 209, DSGS became a landmark effort for integrating DERs with state grid support goals. Sunrun's CalReady VPP, Tesla, and OhmConnect have been active awardees. The program represents a transitional pathway to more structured and permanent market-based DER engagement.

   
   

Post-DSGS Program Landscape (2025 Edition)

The Fourth Edition of DSGS Guidelines proposes a refined structure with three pilot tracks:

• Emergency Dispatch Pilot: For non-residential customers to reduce load during grid emergencies (EEA events).

• Incremental Market-Integrated DR Pilot: Provide incremental capacity into CAISO via Proxy Demand Resource (PDR), earning fixed monthly capacity payments.

• Market-Aware Storage VPP Pilot: Offers capacity payments based on behind-the-meter battery performance during day-ahead price spikes or emergencies. Includes monthly base rates (~$16.80/kw-month in July) plus 30% bonus incentives in 2025-26.

These pilot models show a shift from event-based incentives to capacity-based, performance-driven market participation. They reflect an overarching strategy to align DER incentives with CAISO market needs.

Key Participants:

• Sunrun: CalReady VPP with over 16,000 enrolled systems, providing over 48 MW to support California’s power grid.

• Tesla: Enrolls Powerwalls via ELRP and DSGS, with Autobidder platform enabling future DERP engagement.

• OhmConnect: Notable for behavioral DR programs and expanding into battery aggregation.

Future Modifications and Strategic Roadmap

CAISO is undertaking regulatory and technical modernization via:

• DDEMI (Demand and Distributed Energy Market Integration): Working to evolve participation models, establish device-level telemetry, and simplify enrollment.

• Real-Time Load Bidding (RTLB): Potential future structure allowing vpps to participate in real-time market balancing.

• mPDR Rule Expansion: Proposals to allow for grid export compensation and load shaping beyond critical peak hours.

State Goals: Achieve 7,000 MW of load-shift resources by 2030, necessitating scalable DER integration frameworks.

Community Choice Aggregators (CCAs) and DER Coordination

Community Choice Aggregators (CCAs) are local, non-profit government programs that allow cities, counties, or groups of jurisdictions to procure electricity on behalf of their residents, businesses, and municipal accounts. While CCAs source the power, the local Investor-Owned Utility (IOU) continues to deliver it and maintain the grid infrastructure.

Key characteristics of CCAs:

• Local governance: Managed by local elected officials or boards.

• Customer opt-out model: Customers are automatically enrolled and can choose to leave.

• Focus on renewable energy: Many CCAs prioritize higher renewable content than IOUs.

• DER integration: Increasingly involved in programs that harness customer-sited solar, storage, EVs, and flexible load.

Why CCAs Are Key to DER & VPP Expansion

CCAs have emerged as natural leaders in demand-side resource coordination because of:

• Proximity to customers and community-based planning.

• Mission alignment with decarbonization and grid resilience.

• Flexibility to test innovative rate structures, incentive programs, and partnerships

Active VPP and DER Programs by Leading CCAs

1. Clean Power Alliance (CPA) – Los Angeles & Ventura Counties

• Calready VPP Program in partnership with Sunrun & Haven Energy.

• Power Response Program is a behavioral demand response program offering incentives for reducing usage during peak events.

  
  

2. Marin Clean Energy (MCE)

• DER Playbook Pilot in partnership with PG&E and Gridworks.

  
  

3. Silicon Valley Clean Energy (SVCE)

• Virtual Power Plant (VPP) Pilot partners with Olivine Inc. For automated demand response (ADR), and supports residential and commercial battery integration.

• Electrification Innovation Program offers incentives for solar + storage adoption in disadvantaged communities.

4. San Diego Community Power (SDCP)

• DER Pilot Development Exploring solar + storage incentives targeted at low-income multifamily buildings.

• Pursuing DSGS pilot integration and preparing for future DERP participation.

5. Sonoma Clean Power (SCP)

• Advanced Energy Rebuild Program

• GridSavvy Community by coordinating smart thermostats, EV chargers, and storage for demand flexibility.

 Market Readiness for Aggregators and VPP Operators

Aggregators must adopt a dual approach to remain competitive

1. Short-Term Monetization: Prioritize DSGS Pilots and ELRP for predictable income.

   
   

2. Long-Term Market Positioning:

   • Invest in DERMS or intelligent aggregation platforms (e.g., AutoGrid, EnergyHub).

   • Develop customer auto-enrollment (as used by Sunrun’s TPO model).

   • Prepare for CAISO telemetry and performance compliance requirements.

How VPP Participants Can Leverage & Prepare

Current Revenue Strategy

Pathway	Typical Revenue	Predictability	Scalability
ELRP via IOUs (e.g., Tesla)	~$120/kW-year (event-based)	Low	High
DERP Market Participation	~$78–$200/kW-year (variable)	Moderate	Complex
DSGS Market-Aware VPP Pilot	~$200+/kW-year + $1/kWh (emergency)	High	Moderate

• DSGS Option 3 (Market-Aware VPP) is currently most lucrative and predictable.

• Aggregators should participate across DSGS, DERP, and ELRP based on event probability, performance confidence, and market access tools.

  
  

Software and Operational Readiness

To meet CAISO integration and DSGS pilot criteria, VPP participants must:

Ensure assets (solar, storage, EVs) are individually enrolled and controllable, even within the same household.

Use robust DERMS or VPP software platforms:

• GridShare (Sunrun)

• AutoGrid Flex (Xcel, CPS)

• Tesla Autobidder

• EnergyHub (National Grid)

  
  

Key Acronyms and Definitions Used

CAISO	California Independent System Operator
VPP	Virtual Power Plant
DER	Distributed Energy Resource
DERP	Distributed Energy Resource Provider
DRP	Demand Response Provider
DSGS	Demand Side Grid Support
ELRP	Emergency Load Reduction Program
PDR	Proxy Demand Resource
RTLB	Real-Time Load Bidding
DDEMI	Demand and Distributed Energy Market Integration
IOU	Investor-Owned Utility
TPO	Third-Party Ownership
CCA	Community Choice Aggregator
mPDR	Measured Proxy Demand Resource
EEA	Energy Emergency Alert

Contact Us

To learn further to understand how your organization can participate in CA-ISOs VPP, DSGS, DERP, and ELRP, contact sanjay.bhatia@quantiedge.com or Call/ Text us at +1 385-352-6820