Home-scale layer
Home batteries, smart thermostats, and flexible household load.
Distributed capacity: the third way to grow the grid
Load growth changed the incentive to use distributed resources at scale. Demand is outpacing new grid infrastructure, batteries hit record-low prices, and data centers will pay for capacity. Utilities, providers, and large loads are converging on one market: distributed capacity.
The category
What is distributed capacity?
Capacity on the distribution grid, ready to be harvested.
Distributed capacity is the third tool utilities have to grow the grid, after transmission and centralized generation. Transmission and centralized generation expand the bulk power system. Distributed capacity works on the distribution grid, using batteries, gensets, and flexible load to deliver capacity exactly where and when the grid needs it most.
Sited behind a substation, distributed capacity lowers that substation's draw on transmission, relieves thermal constraints, and defers local upgrades. The result is megawatts the grid can count on at peak.
Three tools to grow the grid
1
Transmission
Adds capacity to the bulk system
2
Centralized generation
Adds capacity to the bulk system
3
Distributed capacity
Adds capacity on the distribution grid, where load is growing
Commercial-scale layer
Deployed by the hundreds
Batteries and gensets of 1 to 5 MW at commercial, industrial, and nonprofit sites.
It comes in two layers. Either layer can be utility-owned, third-party-owned, or customer-owned.
Why now
Why is distributed capacity growing now?
Load growth is back. The tools to meet it are here.
For two decades, distributed resources served the grid mostly as peak-shaving tools: demand response, virtual power plants, and behind-the-meter batteries. Now load growth makes the grid's unused headroom valuable, and cheaper batteries make it practical to capture.
Load growth
166GW
The five-year US peak load growth forecast rose more than sixfold in three years, from 24 GW to 166 GW (Grid Strategies). Manufacturing, AI computing, and electrification are driving it.
Batteries
$70/kWh
Stationary storage battery pack prices fell 45% in one year, to an average of $70/kWh in 2025 (BloombergNEF). Hundreds of 1 to 5 MW batteries across a distribution system now pencil.
Grid utilization
53%
A Duke University analysis of 22 regional power systems found the grid runs at 53% of its capacity on average (Electrek). Distributed capacity puts that headroom to work where load is growing.
“I'm excited as I've ever been that distributed capacity as a category is really arriving.”
Grid utilization
Why does grid utilization matter for distributed capacity?
More power from the grid we already have.
Grid utilization is the share of the grid's capacity that gets used. The grid is built for its peak, so most hours of the year its wires and substations carry far less than they can. That unused headroom is what distributed capacity harvests.
The price of power is a division problem: what the grid costs, divided by the kilowatt-hours it delivers. Batteries on the distribution grid charge when there's plenty and discharge at peak when it's needed most, so the same wires carry more power and fixed costs spread across more sales. Brattle analysis for the Utilize Coalition and GridLab found that a 10% gain in system utilization could cut rates about 3.4%, and that better utilization could cut US electricity bills by $110 billion to $170 billion over the next decade (Brattle).
Utilization also strengthens the case for building. Utilities that get the most out of the grid they have earn the standing with regulators, communities, and boards to invest in the transmission, generation, and modernization every region needs. As new load arrives on the distribution grid, it helps fund that modernization.
States are starting to plan this way. The Utilize Coalition, a nonpartisan group of companies including Sparkfund and Google, launched in March 2026 to set grid utilization goals within existing state planning processes (Electrek). Virginia now requires its two largest utilities to propose grid utilization metrics (HB 434).
$110–170B
US electricity bill savings from better utilization over the next decade
3.4%
Rate reduction from a 10% gain in system utilization
Already in market
Where is distributed capacity being adopted?
States, utilities, and large-load customers are leveraging distributed capacity today, and analysts, industry groups, and trade press have adopted the term.
Minnesota Up to 200 MW
The first distributed capacity procurement is underway. The Minnesota Public Utilities Commission unanimously approved Xcel Energy's Capacity*Connect on April 2, 2026. The program will install up to 200 MW of battery storage at commercial, industrial, and nonprofit sites by 2028, and Google committed $50 million toward it (Xcel Energy).
Virginia State energy plan
The 2026 Virginia Energy Plan makes distributed resources a key strategy for meeting load growth while lowering system costs, and cites Capacity*Connect as an example (Virginia Energy). A new law also requires the state's two largest utilities to seek approval for large-load flexibility programs that can include energy storage (HB 284).
Maryland 15 MW
Regulators approved a 15 MW utility-owned, customer-sited storage program in April 2026 (Maryland PSC).
New Jersey 150 MW proposed
Regulators released a straw proposal for 150 MW of distributed storage in August 2026, with a distribution-connected, front-of-the-meter initiative to follow (NJBPU). The state's Data Center Fair Share law, signed in July 2026, also opens a pathway for large customers to fund distributed capacity (RMI).
Analysts
RMI has mapped three commercial models for data centers to fund distributed capacity, which it defines as "off-site demand flexibility, energy efficiency, and distributed generation," and the open questions regulators need to settle to scale it. Beyond speed to power, RMI finds that recent policies and commercial arrangements are "beginning to recognize other benefits, including cost reduction and hedging, firmer service, and community benefits" (RMI).
Industry groups
The Alliance to Save Energy and The Ad Hoc Group convened a Google-sponsored working session in February 2026 on bridging the load gap with distributed capacity (Alliance to Save Energy). SEIA and the Coalition for Community Solar Access hosted a session at NARUC's 2026 Summer Policy Summit on research into distributed capacity procurement (SEIA).
Trade press and events
Latitude Media covers "the new market for distributed capacity" and puts it on the agenda of its October 2026 Flex Summit (Latitude Media, Flex Summit). Utility Dive reported home energy providers offering 16.8 GW of distributed capacity to utilities and hyperscalers (Utility Dive).
FAQ
Distributed capacity FAQ
The questions utilities, regulators, and large-load customers ask most about the category and how it is bought, built, and dispatched.
What is the difference between distributed capacity and DCP?
Distributed capacity is the category: distributed resources that deliver capacity at grid scale. DCP is a utility-led model within that category for deploying firm distributed capacity with front-of-the-meter batteries and gensets.
Is distributed capacity the same as distributed energy resources (DERs)?
Not quite. Distributed energy resources are the equipment: rooftop solar, batteries, smart thermostats, and EV chargers. Distributed capacity is what some of that equipment delivers when it is sited, enrolled, and dispatched to meet grid peaks. A solar panel that lowers a home's bill is a DER. A battery dispatched at peak to relieve a substation is distributed capacity.
What is firm distributed capacity?
Firm distributed capacity is distributed capacity that is deliberately sited, integrated into utility operations, visible and dispatchable by the control room, incorporated into long-term system planning, and fully dedicated to system needs. The utility chooses where it goes and plans around it like any other grid asset.
To count toward bulk system capacity, it also needs telemetry and integration with utility SCADA.
What is Distributed Capacity Procurement (DCP)?
Sparkfund pioneered Distributed Capacity Procurement (DCP) and is leading the way in defining the distributed capacity category. DCP is the model for delivering firm distributed capacity, a dependable tool for states and utilities to handle load growth.
Distributed Capacity Procurement (DCP) unlocks capacity by enabling the rapid, scalable deployment of front-of-the-meter battery and genset infrastructure on the distribution grid. Typically sized at 1–5 MW per site, assets deployed through DCP are physically located at customer sites but planned for and operated by utilities as grid resources. DCPs represent a new frontier in utility resource planning, transforming the distribution grid into a platform for capacity growth.
Every DCP runs in three phases: the utility and Sparkfund design it, Sparkfund deploys it, and the utility dispatches it from the control room, in programs of 200 to 500 MW.
Is a home battery distributed capacity?
It can be. Home batteries and smart thermostats enrolled in a program make up the home-scale layer. How much of it counts at peak depends on how the program is dispatched and accredited.
How does DCP relate to virtual power plants and demand response?
They are complementary. Virtual power plants and demand response draw on resources customers already own, dispatched through programs. DCP adds planning-grade, utility-owned batteries sited where the distribution grid needs them. A utility can use all three in the same territory.
Who owns and operates distributed capacity?
It depends on the model. In DCP, the utility owns and operates the batteries, and a commercial, industrial, or nonprofit property hosts them. In other models, a third party or the customer owns the equipment, and a program dispatches it.
How fast can distributed capacity be deployed?
Both layers move faster than new transmission-connected generation:
- Home-scale programs: Aggregating home batteries and smart thermostats that customers already own can add capacity "within months, not years," according to a report co-authored by former DOE Loan Programs Office director Jigar Shah (pv magazine).
- Commercial and industrial (DCP): Utilities can bring first capacity online in 9 to 12 months. Full programs of 200 to 500 MW can scale in 24 to 36 months, deployed in 5 to 10 MW cohorts that match actual load growth.
- For comparison: Power plants seeking transmission interconnection take more than five years to reach commercial operation in regions with data (Berkeley Lab).
How do data centers pay for distributed capacity?
Large-load customers increasingly bring their own capacity, funding new resources in exchange for credits toward their own load. The Alliance to Save Energy and The Ad Hoc Group call this Bring Your Own Distributed Capacity, or BYODC (Alliance to Save Energy). Utilities have approved or proposed 104 large-load tariffs across 37 states, giving large loads a regulated way to pay for the grid they need (NC Clean Energy Technology Center). BYODC works with every type of distributed capacity, through large-load tariffs, energy service agreements, or bilateral deals:
- Front-of-the-meter batteries (DCP): Through DCP, the large load buys the accredited capacity from batteries on the distribution grid, and the utility funds the rest and keeps the local grid value. Google's $50 million commitment toward Xcel Energy's Capacity*Connect is one example.
- Aggregated home batteries and thermostats (virtual power plants): Voltus and Google signed a three-year Bring Your Own Capacity™ agreement for up to 100 MW of distributed capacity in PJM from batteries, smart thermostats, and other flexible resources (Voltus, Google). Voltus has since added Sunrun's home batteries to its capacity programs for AI hyperscalers (Sunrun).
- Demand response, managed EV charging, and efficiency: The same framework lets large loads fund these resources with their utility in exchange for capacity credits (Alliance to Save Energy).
Some compute providers flip the model and bring the load to existing headroom. SPAN's XFRA is designed to place liquid-cooled GPU nodes in homes and small commercial buildings, powered by spare capacity its smart panels unlock in existing electrical service, with homebuilder PulteGroup as an early partner (SPAN).
How do communities benefit from distributed capacity?
Distributed capacity puts grid investment where people live and work, and each layer returns something local:
- Commercial and industrial sites: DCP hosts, including local businesses, schools, houses of worship, and nonprofits, earn thousands of dollars a month in lease payments for up to 20 years, on space they weren't using.
- Homes: Home batteries in utility programs keep the lights on during outages. El Paso Electric and Base Power are deploying up to 10 MW of utility-dispatched home batteries that preserve backup power for participating households (El Paso Electric). Home energy providers including Sunrun, Tesla, and Renew Home pay households to take part in grid programs (Utility Dive).
- Electrification: PG&E is supplying SPAN Edge devices so homes can add EV chargers and electric appliances without panel or service upgrades that can cost $6,000 to $40,000 (SPAN).
EVs, home electrification, and edge compute are arriving on the distribution grid, and distributed capacity creates the local headroom to serve them.
Delivering the Distributed Grid
The distribution grid is a platform for growth. See how utilities design, deploy, and dispatch firm distributed capacity through Distributed Capacity Procurement.