A virtual power plant, or VPP, is an interconnected network of small-scale, distributed energy resources (like your home solar and battery system) that are linked by one centralised control system.
Using sophisticated software, the home batteries can be remotely charged and discharged into the grid by the VPP operator (who could be your power company, a government, etc) to help improve grid stability, cut pollution (by using home renewables rather than large-scale fossil fuel generation) and generate revenue for the VPP operator.
Participants are usually rewarded with financial incentives that can range from discounts on the cost of their solar and battery system, to lower electricity rates, to bill credits anytime the operator uses their battery as part of the VPP.
Together, these household energy systems work similarly to a traditional power station. But instead of one big power plant, a VPP connects many smaller home solar and battery systems that can be spread across many neighbourhoods.
Why VPPs vs traditional power stations?
For a century, large power stations have been generating electricity and exporting it to homes and businesses through huge networks of poles and wires.
This centralised method of energy generation and distribution is not without its limitations (for example, energy losses associated with transmitting electrons vast distances) and technology is now changing the energy landscape.
Over 2.5 million households have rooftop solar and are generating their own electricity. So an electricity distribution system that was designed to push electricity one way – toward your home – is now also having to take it back the other way.
At the same time the average Australian’s electricity bill has also skyrocketed, nearly doubling over the past decade. Building and maintaining our extensive network of poles and wires has been the largest driver of increasing electricity costs.
VPPs on the other hand eliminate the need for such extensive networks of poles and wires. They’re made up of many small electricity generators scattered throughout the grid and are projected to save an estimated $16 billion annually in grid infrastructure costs by 2050.
These generators are also owned by households, allowing them to share in the profits made from their generation and distribution services.
Plus, VPPs utilise the clean, renewable energy generated by rooftop solar systems. This solar energy is better for the environment and, with the adoption of battery storage, can be stored to use at energy time.
The VPP warning label
The reality is that, by joining a VPP, you’re signing over control of your battery to a third party, so it’s important to ensure you’re right across the details before committing to one.
Know who the VPP operator is and the fine print around how your battery could be used as part of the program. You need to be comfortable with the level of control they will have. How much electricity can the VPP operator draw from your battery? Is there an “exit fee” should you decide to leave the program early?
Not all battery systems have software with the level of sophisticated remote control capability needed to participate in a VPP. Find out which batteries can be enrolled and how much the system will cost.
Ask how you will be rewarded for participating in the VPP. Will you get reward credits on your electricity bill, or access to exclusive energy rates? Find out who your power company will be and what energy plan you’d be on.
Finally, do you plan to use your battery to power your home in case of a blackout? If so, ensure the VPP operator will leave enough in reserve. You don’t want to find yourself without any charge when a blackout hits!