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How CAISO Is Bringing More Distributed Energy Resources Into the Wholesale Market
Published August 10, 2026
By How CAISO Is Bringing More Distributed Energy Resources Into the Wholesale Market
California’s electricity system is increasingly relying on resources located behind the utility meter, from batteries and rooftop solar to flexible electricity demand. The California Independent System Operator (CAISO), which operates the state’s wholesale electricity market and transmission grid, is now considering changes that could make more of these distributed energy resources (DERs) eligible to participate in wholesale markets. A revised demand response framework expected in August 2026 could potentially open a path for more than 2 GW of behind-the-meter resources to participate, according to industry estimates.
CAISO Is Expanding the Role of Distributed Energy Resources
Distributed energy resources are smaller-scale electricity resources located close to where energy is generated or consumed. They include behind-the-meter batteries, rooftop solar, demand response programs, electric vehicle charging, and flexible building loads. Individually, these resources may be too small to function like conventional power plants. When coordinated through an aggregator, however, they can collectively provide a larger and more predictable resource to the electricity system.
CAISO’s proposed changes focus on how these aggregated resources are treated in the wholesale market. Under a draft proposal released in July 2026, distributed energy resource aggregators could be treated as discrete resources and could export power within CAISO load zones until their aggregated net load reaches zero. The proposal is designed to provide greater flexibility for distributed resources to participate in wholesale demand response programs.
The scale of the potential change is significant. Advanced Energy United estimates that the framework could incentivize more than 2 GW of additional behind-the-meter energy resources to participate in CAISO’s wholesale market. For perspective, 2 GW represents 2,000 MW of potential capacity distributed across many individual sites rather than concentrated in a single generation facility.
Aggregation Makes Smaller Resources Market-Relevant
The key to integrating DERs into a wholesale market is aggregation. A single commercial battery may provide only a few hundred kilowatts of capacity. A building’s HVAC system may be able to temporarily reduce demand by a smaller amount. EV charging can also be shifted within a limited timeframe. When hundreds or thousands of these resources are coordinated, however, their combined capacity can become meaningful to the grid.
Consider a group of commercial buildings across California. Each facility could have different combinations of batteries, solar panels, HVAC systems, refrigeration, and EV chargers. An aggregator can monitor these resources and coordinate their operation in response to market conditions or grid needs.
For demand response, the objective can be relatively simple. Instead of producing additional electricity, participating facilities reduce their electricity consumption during a designated period. A battery might discharge, an EV fleet might delay charging, or a building management system might temporarily adjust HVAC operation. The individual changes can be small, but their combined effect can provide a measurable reduction in demand.
CAISO’s proposal is particularly relevant to behind-the-meter batteries. Under the current framework, these batteries can capture some wholesale market value by offsetting onsite electricity consumption during peak events, while exports beyond the meter face different treatment. The proposed approach would assign wholesale value to certain behind-the-meter battery aggregations that reduce load within CAISO’s sub-load aggregation points, or sub-LAPs. CAISO has more than 20 of these geographic areas across its transmission system.
California Needs More Flexible Electricity Resources
The proposed changes come as California’s electricity system becomes increasingly dynamic. Solar generation can produce substantial amounts of electricity during the middle of the day, while electricity demand can rise later when solar output declines. Batteries and flexible loads can help bridge these periods by shifting when electricity is generated, stored, or consumed.
Behind-the-meter resources can also provide flexibility without requiring every response to come from a large centralized power plant. A battery installed at a commercial facility can store electricity and later reduce the facility’s grid demand. A building can adjust certain electricity-intensive operations when conditions allow. EV charging can potentially be scheduled around periods of higher or lower system demand.
This flexibility becomes particularly valuable when the grid faces localized constraints. Electricity supply must be delivered to the right location at the right time, so adding generation capacity alone does not necessarily resolve every grid constraint. Distributed resources located near demand can potentially provide support where it is needed, depending on their technical characteristics and market eligibility.
CAISO’s proposal also maintains an important distinction between demand response and generation. The framework is intended to expand the use of behind-the-meter resources while retaining demand response as load curtailment. Aggregators seeking to become net energy exporters would still need to enter the appropriate generation interconnection process.
Energy Data Becomes More Important as DER Participation Grows
As more distributed resources become capable of participating in electricity markets, businesses need a clearer understanding of how and when their facilities use electricity. A battery, solar array, HVAC system, or EV fleet has limited value as a flexible resource if its operating patterns are poorly understood.
Energy data can help identify the conditions under which flexibility may be available. For commercial and industrial facilities, useful information can include:
- Electricity consumption by time interval
- Peak demand periods
- Facility-level load patterns
- Battery charging and discharging behavior
- Onsite solar generation
- HVAC and other major electricity loads
- EV charging schedules
- Changes in consumption during demand response events
This visibility can help facility managers determine which loads are operationally flexible and which need to remain constant. It can also provide the baseline needed to evaluate whether a battery, demand response strategy, or other energy-management measure is actually reducing costs.
The potential expansion of DER participation therefore creates a more direct connection between energy management inside a building and electricity-market activity outside it. Businesses may increasingly need to consider not only how much electricity they consume, but also when they consume it and which parts of that consumption can be adjusted.
For companies operating multiple facilities, centralized energy monitoring can be particularly useful. Comparing load profiles across locations can reveal which sites have the greatest peak demand, which have compatible operating schedules, and where technologies such as batteries or flexible controls could have the greatest impact.
Conclusion
CAISO’s proposed changes could create a larger role for distributed energy resources in California’s wholesale electricity market. The potential addition of more than 2 GW of behind-the-meter resources highlights how aggregated batteries, flexible loads, and other distributed assets can become meaningful participants in the electricity system.
The transition also changes the role of energy management for commercial and industrial facilities. As electricity markets place greater value on flexibility, businesses need accurate information about their consumption patterns to understand where that flexibility exists. Energy data can provide the foundation for identifying peak loads, evaluating storage and demand response opportunities, and measuring the results of operational changes.
California’s approach illustrates how the boundary between the electricity grid and individual facilities is becoming more interactive. As CAISO continues to develop its framework, businesses with better visibility into their energy use will be better positioned to understand the opportunities created by a more distributed electricity market.
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