Virtual power plants will fail without an industry overhaul that puts consumers first

Australia is generating more electricity on its rooftops at times than from coal and gas plants, and the industry is betting on Virtual Power Plants (VPPs) to harness this power for the grid.

There are solar panels on around 4 million homes and businesses in Australia that together have a capacity of nearly 25 gigawatts. That’s more than the coal capacity of around 21 GW, and during the daylight hours at least, rooftop solar outshines those fossil fuel staple.

But although the majority of that energy is generated in the middle of the day, most of it is needed in the evening.

VPPs work by coordinating solar panels, batteries, and other small energy resources to function as one large, flexible power source. Energy can be generated and stored in one location and discharged in another to ensure any excess generation is utilised.

The Federal Government, the Australian Energy Market Operator and much of the industry are now relying on VPPs to harness this consumer generated power for our future energy needs.

“The amount of residential systems going in, and the amount of residential batteries going in, has such a potential significant benefit to the country,” James Sturch, the technical director at global solar and battery company Solar Edge, told the SwitchedOn podcast.

“If we have any hope in being able to properly transition away from fossil fuels and to meet the carbon reduction commitment of the government, VPPs are vital,” Sturch argues.

Australians don’t trust the energy industry

But despite the push from industry, Australians aren’t signing up to VPPs at the rate the government needs to meet its climate targets.

Most VPPs require a residential consumer to have a home battery but currently there are only around 140,000 home batteries installed in Australia. Less than 20 per cent of them are connected to a VPP.

AEMO is projecting that Australia will need around 40 gigawatts of residential storage installed by 2050 that can be orchestrated, or used by a VPP, if we are to transition away from fossil fuels and meet the government’s own targets.

“That’s equivalent to three and a half million consumers with a 10-kilowatt hour battery,” says Sturch.

But Sturch is concerned that our current energy system is not only disincentivising consumers, it’s creating roadblocks to VPP uptake.

“Everyone has just assumed consumers would sign up, but they’ve underestimated the lack of social licence,” says Sturch. “Fundamentally consumers don’t trust the energy industry.”

“To allow an energy provider to use your asset is a huge challenge and a massive hurdle.”

VPP demonstration project fails

In 2019 the Australian Energy Marker Operator (AEMO) ran a big VPP demonstration project to show how VPPs could benefit the network, as well as consumers. They set out to get 700 megawatts of VPP power connected by 2022, approximately 500 consumers.

In 3 years they only managed to enrol a fraction of what they needed – just 31 megawatts, or 3 per cent of their target.

“That is really indicative of the challenge,” Sturch says. “When consumers are investing in any of these products, they’re motivated primarily by a desire to reduce their electricity bills and to be self-sufficient and self-reliant.”

“They underestimated the social license, that people don’t trust it. People don’t want to have their products controlled by someone else.”

Not only do consumers need strong financial incentives to participate in a VPP, they also need to feel confident that at the end of the day they will be better off.

“It’s like a big red button”

Lack of social licence isn’t the only challenge facing the scale up of VPPs.

Electricity networks currently often have to deal with excess power being generated, usually during the day from excess solar.

The easiest way to manage that excess would be to use it elsewhere, where it’s needed – to charge someone’s car or battery for instance.

But Sturch argues the networks are not set up to do that because they are ‘ring fenced’ from dealing directly with consumers, and reliant on VPP aggregators, usually retailers, who control the VPPs.

So rather than being able to move the excess energy to where it is needed, Sturch argues the networks see it from “a risk management perspective”, as a problem, for which they have limited options to manage. One of those options is to curtail residential solar output.

Networks have a power known as the ‘backstop mechanism,’ which is now mandatory in South Australia, Victoria, Queensland, Western Australia, and will be rolled out in New South Wales next year.

“It’s like a big red button,” Sturch says. “They can turn off people’s solar – they can either turn it off completely, or prevent it being able to export anything.”

These sort of powers Sturch argues, not only disincentivise consumers from participating in VPPs, they create roadblocks.

“In some circumstances, they actually use these mechanisms to control people’s input of energy into their homes.

This makes things difficult for VPP operators, which sit below the networks on the energy pecking order. Even though a VPP operator can see one region producing excess solar, and another that needs additional energy, “they can’t touch it because the network is saying, we’re going to limit how much energy those systems can put out, or how much energy those systems can consume.”

In some regions, where there is too much generation in the middle of the day, and the price for energy goes negative, Sturch says consumers could theoretically be paid to use energy.

“You could be paid to charge your car. You could be paid to charge your battery. What an amazing idea!”

“But in some jurisdictions, the state governments have actually turned around and said, no we’re not going to pass that on to the consumer.”

“Which is kind of crazy.”

Cheaper and faster in Germany

Germany is one country that is dealing with the issue differently. Sturch says Germany was faced with the prospect of having to upgrade their electricity network to allow excess wind generation in the north to flow to the south where there is more demand.

“To upgrade the network it was going to cost them around 2 billion euros and take around four years.”

Instead, they used a network of batteries and paid a fleet of consumers in northern Germany to charge all their batteries with their excess wind generation, and then they discharged the batteries and charged the batteries up in southern Germany at a rate the transmission network could handle.

“They delivered that in about six months and offset the entire cost of upgrading the transmission.”

However, Sturch says the situation in Australia won’t change unless something fundamental changes.

“The consumer needs to be front and centre of the industry. There really, really does need to be a consumer centric model where their rights and wishes and needs and incentives are front and centre.”

“You’ve got to build the system from the ground up. What would a consumer need or want? What would motivate them to be able to share their energy with a neighbour, or let someone else share their energy, or let someone else take control of their loads. What would give them confidence, and how do you build it that way?”

You can hear the full interview with James Sturch on the SwitchedOn podcast: