VPPs Have Pros & Cons — But Watch Out For The Cons!

Thanks to the federal battery rebate and multiple state incentives, many new battery owners will soon be wondering if they should join a Virtual Power Plant (VPP).  While the pros can make it worthwhile, you have to look out for a huge list of cons before signing up.

Last week, I wrote about how the payments and potentially other benefits from joining a VPP, which is a network of solar power and battery systems coordinated by a central operator,  can make it worthwhile.  This week, I’m writing about the multiple difficulties, issues, and outright traps you may need to deal with or dodge when joining one.  But before I go into various VPP problems — and boy, are there a lot of them — I will ask you to do one thing …

So long as there is a decent VPP available in your area that accepts your battery and doesn’t have the goal of screwing customers over, then after joining you shouldn’t have any worries beyond deciding how to spend your meagre payments and checking every year or so to ensure it hasn’t become a bad VPP and is ripping you off in relation to what else is available.

But you will need to carefully check that it is a decent VPP.

VPP Problems

Problems with VPPs include:

• A lack of choice — including no choice at all in TAS and NT.
• Each VPP generally only accepts a limited range of batteries.
• Even if they accept your battery, a VPP can knock you back if they don’t like its capacity or the capacity of your solar system.
• With most VPPs — but not all — you’ll no longer have full control over your battery.
• VPPs lock you into one electricity retailer.
• There can be expensive hidden “gotchas” in their terms & conditions.
• VPPs increase wear and tear on your battery.

Now the federal battery rebate is available and states like NSW and WA are offering VPP-linked incentives, I expect — or at least hope — most of these problems will diminish as more VPPs appear, existing ones increase their coverage, and competition for customers causes them to improve their terms.

Limited Choice

The first major hurdle to joining a VPP is there’s not a lot of choice, with what’s available depending on where you are:

• Some choice:  ACT, NSW, QLD, SA, and VIC
• Very limited choice:  WA
• No choice:  TAS, NT

But even in the locations where there’s some choice, options can be limited — or disappear entirely — outside of major cities.  WA has very limited choice, but at least — so long as you are on-grid — there will be a state-provided VPP available.  In Tasmania and the NT, you’re currently out of luck because, as far as I know, no VPPs are available.

VPP choice is further constrained because they usually only accept certain types of batteries.  But even if you have a battery they use, they can still reject you if they don’t like your battery’s capacity or even the capacity of your solar system.

This means you can go through the trouble of getting a VPP-capable battery installed — which the federal battery rebate requires — and still be unable to join a VPP because none are available, you don’t have the right battery, or a VPP simply don’t like the details of your system.

But despite the difficulty of joining a VPP, what I don’t recommend doing — unless there’s one you’re desperate to join — is buying a battery to match VPP requirements.  Instead, buy the best battery you can that suits your needs and budget, and then cross your fingers and hope suitable VPPs become available.  As the number of battery owners begins to rapidly rise, I expect VPPs will become far more flexible.

VPPs Can Make You Lose Control

Join most VPPs and you’ll no longer have full control over your battery.  When it suits their purposes, VPP operators can remotely charge or discharge your battery to support the grid.

It’s important to find a VPP that suits your purposes. Finding one that suits your porpoises will be more difficult.

Normally, VPPs are limited in how much they can yank on your battery’s puppet strings and make it dance for their benefit.  Some may only be allowed to discharge a set amount of energy per year, such as 200kWh.  Others may limit it to a number of “cycles” per year, such as 30, with a cycle being the maximum amount of usable energy it can discharge, less whatever reserve amount they may leave to prevent you being stuck with a flat battery if a blackout occurs.

Most VPPs that can drain your battery will leave a reserve.  The typical amount is 20% but it can depend on what type of battery you have.  You may also be allowed to set whatever reserve you like.  Blackouts are rare in major towns and cities, but it will be very annoying if you have a battery that can provide backup power, but can’t use it because your VPP drained your battery just before it occurred.

There are a couple of VPPs that will never drain your battery remotely and leave all discharging decisions up to you.  These are Amber and Glowbird Energy VPP.  Because they don’t directly control your battery, some may not consider them VPPs, but the NSW government says they are for the porpoise of receiving a VPP payment, and that’s good enough for me.

VPPs Using Your Battery Can Cost You Money

Some VPPs offer payments for remotely charging your battery, but don’t mention that you have to pay to replace the energy they use.  For example, you may receive $1 for every kWh they discharge from your battery, which may sound like a good deal, but if it means you have to replace it with 1kWh of grid electricity during the peak period on a time-of-use tariff, that could cost you 70c on some electricity plans. This means you’d only be coming out 30c ahead — before accounting for battery wear and tear.

You might think if your VPP has a limit on how many kWh or cycles can be discharged, it would also limit how much you have to pay to replace the lost energy.  But one dirty trick some VPPs have used is to offer a payment for discharging a battery which is more than high enough to cover the cost of any grid electricity used to charge it, but then they often charge the battery with grid electricity while only discharging it when it suits them.  One person found their battery was being charged with around 3kWh of grid electricity — which they paid for — for every 1kWh that was discharged and they were given a payment for.

While some VPPs guarantee you won’t be out of pocket due to their remote control discharging, and others will cap the amount so you’ll only lose a maximum of $50 per year, some will just hope you won’t realise you’re losing money this way.

Hidden “Gotchas”

If a VPP doesn’t make it clear that you’ll lose money when they discharge your battery to the grid, that’s a type of hidden “gotcha” — something which reduces the value of joining a VPP that they don’t clearly state.  Some of these can be found by carefully reading the terms & conditions documents, while others can be almost impossible to spot unless you’re already familiar with how batteries work.

An example of a well-hidden gotcha potentially occurs with the Glowbird Energy VPP, where they promise to pay $1 if you don’t use grid electricity for a set 2-hour period in the evening.  This is something that sounds like it should be easy for a home with a decent battery, but if you look at the details, it only applies if less than 0.06kWh of grid electricity is used during the 2-hour period.  Because battery systems don’t respond instantly and perfectly to changes in demand, households with them often still draw very small amounts of grid electricity.  This means many battery households may only be able to get the $1 credit in the middle of summer, when their solar systems will still be producing a trickle of electricity during the period when the $1 credit is available.  But some good news is, I’ve heard from the owner of three Tesla Powerwall 2s that they have no problem getting the $1 credit in the middle of winter, so hopefully others can as well.

VPPs Lock You Into One Retailer

If you join a VPP, you have to use its associated Electricity Retailer.  In WA, this doesn’t matter because there’s no retailer choice, but in other locations, this means you won’t be able to change retailers if one offers a better plan, unless you’re willing to give up your VPP.  To avoid being locked into an unhappy relationship, I recommend avoiding VPPs with long contract periods or penalties for quitting early.

VPPs Can Increase Battery Wear & Tear

If a VPP discharges your battery to the grid, you may not only have to pay to replace that energy, but it also increases wear and tear on your battery.

But I say don’t worry too much about this.

If you pay $10,000 for a battery with a warranty that covers discharging 30,000kWh, you may think discharging 1kWh costs you 33c because $10,000 ÷ 30,000 = 33c.  But there are a few reasons why this isn’t the right way to think about it.  Firstly, your battery is unlikely to immediately die the day its warranty is over.  More importantly, once you’ve paid for a battery, you may as well use it.  It will eventually die at some point, but it may be for reasons completely unrelated to battery wear and tear, so — to some extent — it’s use it or lose it.

But the most important reason not to worry much about wear and tear is that when your battery is eventually replaced — hopefully after more than 15 years — replacement batteries should be far cheaper than they are now.  So you shouldn’t value wear and tear on current battery costs, but what you think they’ll be in the future.

So while it makes sense to place some value on wear and tear, keep it low.  Just 5c per kWh may be enough.

Battery wear and tear is no joke — unless, of course, you give the battery googly eyes and make it say something stupid.

VPP Payments Aren’t High

Years ago, for my own amusement, I estimated how much money a VPP could make from a home battery.  The answer was more than they offer now.  But unless you want to start your own VPP, you have to take what you can get.  It’s like what my dad used to say, “Beggers can’t be bruisers, because then they’d be muggers.”

Working out just how much money you’ll make from joining a VPP is very difficult to determine.  This is because they have so many different ways of paying people, which can include:

• Sign-up bonuses
• Fixed quarterly or monthly payments
• Payments per kWh discharged by the VPP
• Payments per kWh that battery owners voluntarily discharge to the grid
• Payments for not using grid electricity during specified periods
• Periods of free grid electricity
• Above-average solar feed-in tariffs
• Discounts on batteries — but these may come off an already inflated price

A single VPP may use several of these.  This not only makes it difficult to work out how much a VPP will save you, it’s also difficult to compare them to see which is best.  As a rule of thumb, you can expect joining a VPP to save, very roughly, around $200 per year.  But this is not a sure thing.  All you can do is look into which VPPs are available to you and, provided there’s more than one, weigh them up as best you can and make your choice.  You may be fortunate and get one that really suits you… Or you may not.

I’m not saying a $200 VPP payment hits like a slice of lemon wrapped around a large gold brick, but it’s better than a kick in the eye from a blind horse.

How To Protect Yourself

Protecting yourself from lousy VPPs can be difficult because, for most people, they’re an unfamiliar product.  But there are important steps you can take to protect yourself:

• Carefully read the terms and conditions: Take notes and keep going through them until you’re confident you understand all the ways you will be paid and all the ways you may have to pay.
• Check with VPP representatives it works the way you expect:  They are obligated to give you correct information and also obligated to live up to any verbal promises or guarantees given.
• Check reviews: We’ll be sure to get some up once we try out some ourselves or find VPP beneficiaries or victims who want to tell their tale.

If these three steps aren’t enough and you end up with a lousy or downright dishonest VPP, then you can fall back on the protection provided by Australian Consumer Guarantees.  Unfortunately, electricity retailers often act like consumer law doesn’t apply to them.  Sometimes it definitely looks like it doesn’t.  But — and this is an important point — it should apply, and — if necessary — you can seek help from consumer affairs or fair trading in your state or territory.

I’ll leave you with this potentially useful but uninspiring piece of advice — don’t expect too much.  You may be better off with a VPP that offers modest payments but doesn’t have much downside, rather than one that appears to promise more but has terms and conditions that could be used to your detriment.

For more on VPPs, read our explainer on how they work, last week’s article on how government incentives make them worthwhile, and our VPP comparison table.