All About Virtual Power Plants (VPPs)

By Finn Peacock – Chartered Electrical Engineer, Ex-CSIRO, Founder of SolarQuotes

Australian virtual power plant programs

Just a few of the companies offering a VPP

Solar batteries are all the rage at the moment. But home energy storage isn’t cheap.

To use an example, the Tesla Powerwall – one of the most popular batteries in Australia – has a warranty of ten years, costs around $16,000 installed and will save you (absolute best case) around $900 per year.

You don’t need a Nobel Prize in Economics to realise that with those numbers, batteries have a crazy-long payback. You can run the numbers for yourself using my super easy-to-use solar and battery calculator, which separates the savings generated by solar panels and a battery system.

But there’s a potential solution to the crappy economics of home energy storage: Virtual Power Plants, or “VPPs”.

What Is a VPP?

A Virtual Power Plant consists of a network of distributed solar power and battery systems and may include other energy resources and controlled loads (such as electric hot water systems). 

These Distributed Energy Resources (DERs) are co-ordinated by a central VPP operator that releases some (or all) of the batteries’ stored energy into the grid during periods of peak demand when wholesale electricity prices are high.

The virtual power plant operator may also direct the batteries to charge when electricity demand is so low that grid stability is threatened. The provision of these grid services can be a very lucrative game – for the operator.

In a nutshell, you give up control of your battery to a third party when part of a virtual power plant. In return, you get an upfront discount on the cost of a battery, a much higher solar feed-in tariff, or both.

It’s really important to read the small print on any VPP offer – as some can be quite sneaky with how they pay you for surplus solar energy sent to the grid.

Our VPP Comparison Table lists all of the virtual power plant programs available across Australia that we’re aware of. 

What Are The Pros And Cons Of A VPP?

Pros:

  • Most (but not all!) VPPs offer an upfront discount on the cost of a battery. This can take a battery from being ‘too expensive’ to ‘worth considering’. The value and format of the discount vary between programs, with some offering much more than others.
  • Most (but not all!) virtual power plant programs promise fixed feed-in tariffs that are higher than average. Some offer variable feed-in tariffs that can go higher (some as high as $1 per kWh or more!) based on electricity’s wholesale price. 

Cons:

  • Some VPPs are BYOB – “bring your own battery”. This means a) there’s no upfront discount and b) the battery you already have might not be eligible.
  • Virtual power plant programs offering above-average fixed feed-in tariffs only marginally improve battery economics.
  • VPP arrangements offering variable feed-in tariffs use dubious assumptions to make their economic case. It’s unclear how often such ‘grid events’ will happen and how much the participating homeowner will benefit.
  • You’re giving up control of your battery to someone else. Most people buy batteries to take back control of their energy usage, not let someone else meddle with it :).
  • Most VPPs (but not all) can hammer your battery as hard as they like, which shortens its lifespan.
  • Most VPPs leave no (or minimal) reserve battery capacity available for the system owner. This is an important consideration for homeowners that think having a battery = blackout protection.

Should You Join A VPP?

I am a participant in AGL’s VPP here in Adelaide. In 2016, I acquired a Tesla Powerwall at a massive discount compared to what’s available now.

Tesla VPP

Me posing with my Powerwall

When I checked last year, I had discharged only 16 kWh to the grid from my battery. It seems I’m getting all the benefits of the discount with none of the drawbacks listed above! Unfortunately – this ‘early adopter’ virtual power plant program is no longer available.

But would I recommend one of the current VPPs to a solar power system owner who wants a battery, but can’t justify it at current prices? 

Not at the moment. The touted financial benefits of joining any VPP available at the time of writing aren’t all that impressive to me for the reasons outlined above. But I am conscious that this can change if/when new virtual power plants join the market and increased competition sees other VPP operators lift their game.

About Finn Peacock

I’m a Chartered Electrical Engineer, solar and energy efficiency nut, dad, and founder of SolarQuotes.com.au. My last “real job” was working for the CSIRO in their renewable energy division. Since 2009 more than 577,000 Australians have used my site to get quotes for high quality PV systems from pre-vetted solar installers.

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