Utilities need more capacity to serve rising demand while maintaining reliability and keeping electricity affordable. Building transmission and centralized generation are essential and priority investments to meet those goals. But now, a growing set of market, regulatory, and industry developments signals that distributed capacity has joined the utility shortlist for growing the grid.
As one of the leading companies defining the distributed capacity category, Sparkfund helped move distributed capacity from concept to implementation by pioneering Distributed Capacity Procurement (DCP), a utility-led model for deploying distributed resources where the grid needs capacity most. Xcel Energy’s Capacity*Connect program is putting that model into practice, while developments across other markets reinforce the category’s growing significance.
Distributed capacity is a category of distributed energy resources deployed or coordinated to deliver capacity at grid scale and contribute to utility planning and system needs. It includes utility-led deployments, demand response, virtual power plants, and other approaches to aggregating distributed resources.
These approaches unlock capacity in complementary ways. Demand response reduces or shifts electricity use during periods of system need. VPPs aggregate resources such as batteries, smart thermostats, electric vehicles, and flexible commercial and industrial loads to provide coordinated grid services. Utility-led models like DCP deploy resources at strategic locations as dedicated grid infrastructure. Together, these approaches expand the options available to utilities to meet capacity needs and support growth.
Distributed capacity resources can help utilities make better use of today’s grid, ease congestion, and serve near-term demand with existing infrastructure. As distributed capacity resources improve grid utilization, they also give utilities a clearer signal of real, sustained growth, which builds confidence to make larger, needed investments in new transmission and generation.
Because of load growth driven by new demand from AI, advanced manufacturing, and electric vehicles, we need to grow the grid faster than we have in the last 100 years to support a modern U.S. economy. That type of rapid growth requires building a significant amount of new transmission and generation capacity, a process that takes years and can translate into higher costs for ratepayers. To move faster and manage affordability, utilities have begun to add distributed capacity as an essential tool in their tool belt.
With distributed capacity resources like batteries and demand response, utilities can identify and harvest unused capacity in the distribution system, getting more use out of the grid we already have. Brattle Group research has found that we can get 200+ GW from our current grid by investing in distributed solutions, and that improving the annual system utilization by 10% would reduce customer rates by 4.8%.
Hyperscalers and other large-load customers have also begun investing in distributed capacity solutions—an approach known as Bring Your Own Distributed Capacity (BYODC)—to get a faster path to grid capacity in constrained markets.
By paying their own way, large-load customers help ensure that the cost of grid growth doesn’t fall on existing customers. Through BYODC, data centers and other large loads are working with utilities to meet new demand, maintain reliability, and modernize the grid.
The momentum of distributed capacity as a category extends beyond one program or deployment model. Recent developments show distributed resources taking a larger role in capacity procurement, utility planning, and state energy strategies.
Together, these developments show distributed resources entering capacity procurement, infrastructure planning, and large-load strategies, expanding the role of distributed capacity in grid growth.
Within the broader distributed capacity category, DCP has gained traction as a model for planning, siting, and deploying distributed assets where the grid needs capacity most. Sparkfund created the DCP model to give utilities greater control over where and how distributed capacity is integrated into grid infrastructure.
DCP deploys firm distributed capacity: deliberately sited, front-of-the-meter resources planned and operated by the utility, visible and dispatchable through utility operations, and fully dedicated to grid needs. Through DCP, front-of-the-meter batteries are connected directly to the grid on the utility side of the electric meter, and are utility-owned and controlled. They are typically deployed in 1-5 MW asset increments, enabling utilities to place capacity at specific points on the distribution system to relieve congestion or meet demand.
This incremental deployment approach is increasingly relevant as large loads, including data centers, seek to connect in constrained markets. By pairing new demand with distributed infrastructure, utilities can add capacity closer to where it is needed while creating a pathway for growth that supports broader grid investment.
Sparkfund’s DCP model is underway through Xcel Energy’s Capacity*Connect program in Minnesota. The utility plans to install up to 200 MW of distributed battery storage at strategic grid locations by 2028, deployed in collaboration with Sparkfund. The distributed capacity resources will help meet increasing electricity demand, support reliable service for Xcel customers, and improve the efficiency of existing grid infrastructure.
Capacity*Connect exemplifies how large-load growth can help catalyze investment in distributed capacity and the grid infrastructure needed to support it. Google committed $50 million toward the program as part of Xcel Energy’s agreement to serve a new data center in Pine Island.
Distributed capacity can also tie grid investment to local economic benefits. Capacity*Connect batteries will be hosted by businesses, schools, houses of worship, and other community institutions. Hosts will receive consistent monthly payments for leasing their space, providing direct economic benefits to the local communities where the infrastructure is being built.
As interest and action around distributed capacity grow, the most important challenge is ensuring utilities can confidently plan for and rely on these resources.
That requires dependable performance, clear operational coordination, and integration with utility planning. It also requires procurement and funding structures that connect grid needs with viable projects across utility-led deployments, demand response, VPPs, and other aggregated resources.
As momentum builds, distributed capacity now sits solidly alongside transmission and centralized generation as a critical part of how we grow the grid. These resources turn the distribution grid into a platform for growth — not simply a passive delivery network — for the first time, and utilities, regulators, and large-load customers all have a role in continuing to grow that opportunity.
Connect with us to explore how distributed capacity can support your utility’s capacity needs.