Q3 2026 U.S. Distributed Generation Market Opportunities

Executive Summary

New long-term utility tariffs, performance payments and rebates are de-risking the development of distributed batteries and fuel cells across more states. These programs create value for property owners and energy users through above-market lease rates and utility bill savings from critical grid assets.

New incentive programs for front-of-the-meter (FTM) distributed batteries take shape

States are creating long-term incentives for FTM distribution-connected batteries to meet storage targets and close growing reliability gaps, as transmission-scale storage additions lag. In Maryland, New Jersey, Illinois, New York and Massachusetts, FTM battery owners could soon access long-term payments priced on the congestion relief and local peak reduction value that they deliver to the grid.

More states will directly pay behind-the-meter (BTM) batteries to reduce peak demand

Performance payments are also expanding for BTM batteries at commercial and industrial sites across Maryland, New Jersey, Illinois, California, Massachusetts, and Connecticut. BTM battery owners get paid to lower a site’s power draw during peak demand hours. These payments stack on top of the high savings that batteries deliver to energy users in PJM, New York and ISO New England. Illinois also offers large industrial customers a rebate that can pay for 40% to 60% of upfront battery costs.

Capacity costs in PJM to remain elevated through at least 2029

On July 14, 2026, PJM’s latest capacity auction cleared at the roughly $330/MW-day ceiling for the third consecutive time. Customers across the Mid-Atlantic region now face elevated capacity costs through at least 2029. Utility tariff structures in Ohio, Pennsylvania, Maryland, Virginia, New Jersey and Delaware are designed to allow BTM battery energy storage systems (BESS) to offset climbing capacity charges.

State incentives enable competitive fuel cell power purchase agreements (PPAs) that cover longer peak demand windows

Abundant natural gas supply and state programs make Pennsylvania and Ohio standout markets for on-site fuel cells, which also qualify for a 30% federal investment tax credit. BTM batteries struggle to lower costs in utility service areas where peak windows run longer than four hours. Fuel cells can run continuously, letting industrial sites cut those charges across the full window, while lowering consumption costs in the process and maintaining 24/7 reliability.

Fig. 1: State-Level Opportunities for On-Site Battery Storage and Fuel Cells

New Jersey

State Advances Distributed Battery Storage Incentives

Key Takeaways New Jersey is developing multiple, long-term incentives for distributed batteries. CBRE is positioning sites to benefit from hosting FTM batteries ahead of the new programs, while structuring BTM projects for customers to qualify for demand response payments starting in 2027.

Demand Response Program

• On July 15, 2026, the New Jersey Board of Public Utilities (BPU) released a proposal for a demand response program to pay behind-the-meter (BTM) batteries to dispatch during peak demand hours. Utilities would administer it from 2027 to 2029 before enrolled projects migrate to a statewide tariff.
• Payment levels remain undetermined, and utilities are expected to file proposed incentive structures by December 31, 2026. A parallel proceeding on the long-term tariff rate that will follow should publish a proposal in the first quarter of 2027.

Distributed Storage Tariff

• Regulators are expected to design a new dedicated tariff for the distributed battery solicitations, part of the existing Garden State Energy Storage Program.
• On June 8, 2026, the Senate Environment and Energy Committee advanced a bill that would direct the BPU to create a 15-year incentive for customer-sited and FTM storage.
• Up to 350 MW would be available in the first program year, and payments would be capped at 40% of project costs.

Maryland

Regulators Make Progress on a New Tariff for FTM Distributed Batteries

Key Takeaways Maryland’s 3,000 MW storage target for 2034 will likely lean on distributed FTM batteries, as transmission-scale projects face long interconnection queues. A standing walk-up tariff is set to create sustained developer demand for site leases, enabling above-market rates.

Demand Response Program

• On June 29, 2026, the Maryland Public Service Commission (PSC) approved a 186 MW, two-year demand response pilot for BTM batteries.
• Payment structures vary by utility. Commercial and industrial sites can earn $90/kW-year plus up to $6/kWh per event from Baltimore Gas and Electric (BGE), or $75/kW-season from Potomac Electric Power Company (PEPCO).

Distributed Storage Tariff

• Regulators are drafting the rules for a new walk-up tariff for FTM distributed batteries. This would replace competitive utility solicitations with a long-term payment that developers can access for any qualifying project without bidding.
• If adopted before November 1, 2026, the new tariff might already govern the remaining 100 MW in the current utility solicitation program.

Illinois

Industrial Customers Can Now Tap into a New Distributed Storage Rebate

Key Takeaways BTM batteries in Illinois deliver some of the strongest savings for industrial sites in the country with the new rebate.

Distributed Storage Rebate

• Illinois will pay distributed batteries a $250 to $300/kWh rebate on up to 25,000 kWh of energy storage capacity, enough to cover 40% to 60% of the installed costs of 5 MW to 10 MW projects.
• Pending final rules, sites with multiple meters may also qualify for a project rebate at each meter.

Distributed Storage Tariff

• Regulators and utilities are also finalizing a new tariff to pay distributed batteries, both BTM and grid-connected projects, to be available during peak demand hours in Illinois.
• The Clean and Reliable Grid Affordability Act (CRGA), which became law in June, set a minimum $10/kW-year payment.

New York

Con Edison Offers to Pay Distributed Batteries and Expedite Interconnection

Key Takeaways Fifteen-year fixed payments, covered charging costs, and priority interconnection rights would make RADR battery projects in New York strong investments. Because eligibility is limited to projects in specific areas, developers could pay premium lease rates for site control.

Utility Storage Program

• Con Edison proposed a Reliability Asset Dispatch Rights (RADR) program to help fill a projected 675 MW reliability gap.
• RADR would pay owners of distribution-connected batteries a fixed rate for 15 years and prioritize their interconnection. A competitive solicitation would set the exact incentive rate.
• On top of RADR payments, Con Edison would cover a battery’s charging costs and interconnection fees, in exchange for full dispatch control year-round and performance obligations.
• Participants would give up their Value of Distributed Energy Resources (VDER) rights and would be ineligible for demand response programs.

Other Distributed Storage Markets to Watch

Battery Storage Solicitation

• In Massachusetts, up to 300 MW of distributed batteries will now be able to participate in the next 1,000 MW transmission-scale procurement.
• Permitting and grid bottlenecks for transmission batteries prompted state regulators to expand eligibility to smaller systems.
• The state has a storage target of 5,000 MW by 2030. Selected projects would secure fixed 20-year payments via the Clean Peak Credit program worth roughly $60/MWh. Bids are due September 10, 2026.

Demand Response Program

• Connecticut’s Energy Storage Solutions (ESS) Program offers distributed batteries demand response payments of $275/kW over 10 years to dispatch during peak demand hours. As of August 2026, the program has 31% of available capacity left.
• On July 8, 2026, California released a new demand response framework that would allow BTM batteries to earn resource adequacy (RA) credits for excess energy exported to the grid during peak demand hours. Currently, BTM batteries can earn RA revenues only via on-site load reduction. If approved, this change would maximize the value out of larger batteries installed at commercial and industrial facilities.

Fuel Cell Market Opportunities

The combination of state incentives and federal tax credits offset the high upfront costs for fuel cells. Because fuel cells run continuously, they can deliver strong behind-the-meter savings to industrial users on multiple utility line items that other technologies cannot, while providing 24/7 reliability:

• State incentives that maximize the value of each kWh produced make it possible to undercut more expensive utility supply in a growing number of markets.
• Fuel cells also allow an industrial energy user to lower its grid draw during the peak demand windows that set a site’s transmission and capacity charges.

Two specific market opportunities currently stand out:

• In Pennsylvania, owners of fuel cells up to 5 MW can sell excess electricity back into the grid at close to retail value and qualify for Tier 1 Alternative Energy Credits (AEC) worth about $30/MWh.
• In Ohio, fuel cells can be sized up to 120% of a customer’s annual load and owners receive partial utility retail credits for exporting to the grid, as well as qualify for renewable energy credits.