U.S. residential battery storage deployments reached a record 1.3 GWh in Q1 2026 — 86% above the same period a year earlier, according to Wood Mackenzie. At the same time, recent legislative change is reshaping who owns batteries, how they’re financed, and how quickly they can be enrolled in virtual power plant (VPP) programs. 

Homeowners who purchase or finance their own battery systems after January 1, 2026, are no longer eligible for the 30% federal tax credit. However, third-party owners (TPOs) of battery systems — those leased by customers rather than purchased — retain access to the Section 48E investment tax credit. 

EnergyHub has seen that capacity growth firsthand: TPO battery enrollments have grown 9x this year. Ohm Analytics predicts that TPO market share will grow from 43% in 2025 to 64% in 2026.

Why TPOs are good for program scale

Lower cost of ownership

TPO providers can claim the 30% investment tax credit on the systems they lease, then pass those savings downstream to end customers through lower monthly lease rates, reduced upfront costs, or a share of the earned incentives. When a utility VPP program adds an additional revenue stream on top, the effective cost of adding a home battery becomes much more accessible. For instance, when Connecticut Energy Storage Solutions implemented program changes enabling third-party owned systems, the monthly customer cost for leased for certain batteries dropped from around $90/month to $65/month.

“ConnectedSolutions has over three thousand customers. TPOs actually play a huge role. We have good numbers from our TPO providers, and we’re really happy to have the capacity that they bring to the market.” — Jenn Runyon, Eversource

Lower operational overhead for customers

Because the TPO is responsible for maintaining and repairing the systems, customers are relieved of operational burden. Since most battery programs are pay-for-performance, the TPO has a financial incentive to keep their system performing well and participating in the VPP. Moreover, the incentive structure ensures that systems are optimized in alignment with VPP goals. 

“We have to keep our systems investor grade for 25 years. We retain complete control over the assets for that entire time period. We keep them in tip top shape.” — Katie Van Horn, IGS Energy

High customer satisfaction results in high participation

Customers are happy participating in VPPs through third party owners. Compared with customer-owned systems, EnergyHub sees fewer unenrollments from TPO batteries and a comparable event opt-out rate. Leading TPOs like Tesla and IGS build trust from the start by setting clear expectations, offering event opt-outs, and walking customers through the VPP experience during the sales process. 

How does a utility VPP with TPOs work?

When TPOs enroll their battery fleets in VPP programs, they can streamline marketing, financing, and onboarding to scale enrollment quickly. The TPO retains operational control of its leased devices, and an experienced distributed energy resource management system (DERMS) provider, such as EnergyHub, works with them to enroll, register, and optimize these systems to deliver grid services. The utility pays incentives to the TPO, which either factors them into preferential lease terms or passes them to end customers. 

End customers benefit under the TPO model as they do under private ownership, but trade VPP incentives for a reduced monthly cost.

VPP participation is built into the TPO model

Many third-party owned battery systems work financially because TPOs seek out territories with established VPPs, assuming the installed systems will participate and earn incentives. TPOs and installers bring up participation during sales discovery and early customer conversations, and most customers sign VPP terms and conditions with the lease agreement.

EnergyHub makes it easier for TPO systems to participate in VPPs

EnergyHub enables faster program growth by helping TPOs incorporate program-specific terms and conditions into their sales process, much like in the Puerto Rico case. EnergyHub also works with utilities and regulators to design TPO-friendly programs.

More significantly, in Q2 2026, EnergyHub became the first to market with an integration pathway that allows third-party owners to enroll, dispatch, and report on devices through EnergyHub’s existing software. This eliminates the need for TPO-side technical aggregation or integration, streamlining entry in utility VPP programs. As a result, utilities can grow their battery VPP programs faster — without requiring TPOs to build their own technical infrastructure — and more customers can access home batteries at lower cost.

Learnings and best practices for scaling the TPO model

1. Incentives must be assignable

In many BYO programs, VPP incentives are paid directly to the end customer. However, TPOs often count on incentive payments for their own financing or to make their lease offers attractive. By making incentives assignable, customers can “assign” them to the TPO at the point of sale to lower their payments. Often, the language to allow assignable incentives may sit at the policy or filing level, or be directed by the PUC. 

“If you’re a TPO that’s baking incentive value into your lease product, predictability is key. No matter what the time horizon is, it’s important that some time horizon is guaranteed, because if we don’t have that guarantee, then there’s nothing that we could underwrite. There’s nothing that we can really bake into the lease product, because we don’t know when it’s going to disappear.” — Katie Van Horn, IGS Energy

2. Incentive level and structure drive adoption

Batteries are expensive. VPP incentives drive battery adoption. TPOs offer a path to affordability, but incentive levels must be meaningful and match the grid services provided to directly impact affordable lease rates. 

We recommend starting up-front incentives at $500 and pay-for-performance at least $100/average kW, depending on grid services provided and local market conditions.

In addition, utilities should consider increasing incentives for locational or targeted participation. For instance, ConnectedSolutions+ participants receive an extra $50-$125/kW for being part of a locational dispatch program that helps relieve specific overloaded feeders. The extra incentive reflects the actual, local grid value added.

3. Longer programs are more compelling

Longer program commitments — typically three to five years — align with financing and investment cycles, giving TPOs and installers confidence to sell the program with compelling lease terms. TPOs also watch for capacity and funding limits; uncapped or well-funded programs signal room to grow and attract more participation from both customer-owned and TPOed capacity. When a longer program conflicts with utility funding cycles, consider offering “rolling renewals” or framing the program as an non-wires alternative (NWA) asset.

“If we’re investing money into participating in these programs and influencing our installers to help customers take advantage of these programs, then we need to know that program is going to be there and available for more than a couple of months, and we need to know that there’s going to be capacity available…to put a finer point on it, a pilot probably isn’t as appealing for a TPO to participate in, because it’s something that could get exhausted fairly quickly, but full-scale programs are something that we look at long and hard.” — Katie Van Horn, IGS Energy

4. Partner-first enrollment flows & auto-enrollment

Enable TPOs and OEMs to drive enrollment through their installers and device platforms. Enrollment is highest when you can reduce friction for customers and encourage enrollment at the point of sale.

Similarly, opt for one program that supports both TPO-owned and customer-owned devices side by side, avoiding customer confusion and making participation as easy as possible.

“The ability to scale VPPs is really one in the same with the ability to scale batteries. A holistically friendly market towards batteries and the deployment and attachment of batteries to solar systems is the best way we can go forward.” — Katie Van Horn, IGS Energy

Ready to design a TPO-friendly battery VPP program? Watch our recent webinar with Eversource, IGS, and Tesla to hear how these programs work in practice — then reach out to talk through what’s right for your utility.