VPPs could save billions, tame the solar duck – and nix the big solar button

The energy market participation of customer energy assets through coordinated virtual power plants could shave $6 billion off electricity costs, tame the solar duck, and remove the need for remote rooftop solar switch-offs, a new report has found.

The massive potential energy cost savings, calculated by Deloitte, are based on a comprehensive three-year research project led by the Australian Energy Market Operator, culminating in an 11-month VPP trial conducted in regional Victoria.

AEMO on Wednesday announced the successful conclusion of the years-long Project EDGE, in collaboration with network company Ausnet and its renewables-focused offshoot, Mondo, and backed by Arena.

On top of extensive modelling, research and surveys, the project’s VPP trial signed up 320 residential and commercial/industrial customers in regional Victoria to provide 3.5 megawatts of flexible capacity from more than 400 behind-the-meter devices ranging from rooftop solar to hot water systems.

In an independent analysis modelling cost benefits of the trial VPP, Deloitte found greater coordination of consumer assets like rooftop solar, battery storage and controllable loads like hot water, would result in an incremental benefit of up to $5.15 – $6.04 billion over the next 20 years.

This was based on reduced costs to all electricity consumers. They also identified an additional societal benefit of $3 billion in emissions reductions.

Much of these savings would come from getting the most value out of the huge amounts of ultra-cheap and clean rooftop solar power generated on millions of rooftops around the country.

According to the 183-page AEMO final report on Project Edge, the arrangement of roles and market configurations used in the VPP trial could help avoid more than 15 terawatt-hours of rooftop solar curtailment to 2030, and more than 90TWh over 20 years under the “step change” scenario of AEMO’s Integrated System Plan (ISP).

Under AEMO’s high distributed energy resources (DER) ISP assumptions, a whopping 50.1TWh of customer rooftop solar curtailment to 2030 and and up to 257.1TWh across the 20 year time horizon to 2042 would be avoided by orchestrating customer energy resources.

AEMO says the findings demonstrate that all consumers stand to benefit from the accelerated and optimised integration of active distributed energy resources on the National Electricity Market.

The project also demonstrates that virtual power plants (VPPs) can provide valuable services to local networks, in addition to AEMO wholesale markets.

“AEMO is a strong advocate for enabling small-scale energy resources to participate in energy markets and reward consumers for the flexibility services they provide,” said the market operator’s executive general manager of system design, Violette Mouchaileh.

“Project EDGE highlights a way forward for coordinating distributed energy resources market participation at scale, which will contribute to improve electricity reliability, grid-security, and ultimately affordability.

“Importantly, the findings of the three-year project will be available for industry and policy makers to consider as we transition to net zero while building power systems that benefits all consumers.”

AEMO’s lead on Project Edge, Nick Regan, says that the main purpose of the trial was not to show that VPPs can work – as he notes, they already exist in a range of different real-world forms in Australia and around the world.

“What we’ve really looked at is, how do you make them scale?”

He says part of this might mean creating a data exchange hub architecture that cuts the costs of setting up VPPs for proponents while also making them a contestable resource for customers moving between retailers.

Regan says AEMO’s study also took a particular focus on how to make VPPs work for customers, “because if you don’t have them on board to participate, you don’t have the DER to coordinate.”

This is where the Deloitte findings come into play, showing that the participation of customer resources in the NEM can be a major driver of lower-priced and cleaner energy for all.

The main barrier, now, is how to get that message out?

Deakin University, another key collaborator on Project Edge, found in its research that accelerating VPP adoption would likely require the majority of households to believe that they are getting a better deal out of their VPP
participation than the aggregators.

According to Deakin’s surveys, while the majority of customers (60%) believed they might benefit equally with aggregators from a VPP, 29% believed that aggregators benefitted more.

“These insights reinforce that VPPs need to build trust and social licence with a larger proportion of consumers to scale up VPP participation,” the AEMO report says.

But building trust in the energy industry is no small feat. Just on Wednesday, Origin Energy boastes to shareholders at its annual general meeting about the gentailer’s market-leading VPP, with more than 343,000 connected resources.

Like AEMO, Origin CEO Frank Calabria says VPPs can be aggregated and orchestrated to help optimise supply and demand in the grid; “allowing Origin to share benefits with customers and helping to avoid unnecessary investment in centralised energy infrastructure.”

But the Origin chair’s description, later, of a VPP as “a capital-light battery” for storing and shifting energy generated by consumer assets – with no need for investment in more poles and wires or big batteries – does give the impression that big incumbents could be the biggest winners.

Meanwhile, from AEMO comes the seemingly conflicting messages of promoting the two-way flow of energy while also demanding grid-wide executive powers to switch off rooftop solar remotely.

“I think one of the key points here… is that no one wants to use emergency backstops,” says Regan, in answer to these concerns.

“We use these to keep the lights on for everybody, because that’s important. But the types of things we’ve tested here are, how do you get market-based responses from DER through VPPs that are voluntary?

“If that can scale then you should be able to avoid using emergency backstops the vast majority of the time because you have a lot more price-responsive resources keeping the system balanced.

“And customers who who participate in that in a voluntary and a proactive way actually get paid for doing that – they don’t get paid to be turned off in an emergency.”

It’s a fair point.

“I think, one of the important things that industry is calling for … is that there needs to be a bit of a shared national narrative on consumer energy resources and and how they can be beneficial for everybody,” Regan says.

“I think probably that education and awareness is still very nascent at the moment. And so it’s something we definitely need.”

One of the reasons AEMO “definitely needs” consumers to be on board with the notion of two-way energy flows and VPPs lies in its own forecasts.

Regan notes that the 2022 ISP has the forecast there will be around 114GW worth of consumer-side rooftop solar capacity in 2050 – or 40% of the NEM capacity installed in the distribution network.

Of that amount, AEMO is hoping around 50 per cent will be able to be coordinated through virtual power plants by that date. If not, the infamous solar duck the market operator is already struggling to tame will be more like a solar diplodocus.

“This market based approach is definitely preferred to a manual emergency solar curtailment approach,” he says.

“Project Edge was really all about how do we get that market-based, voluntary approach to work? To absolutely do things like tame the duck curve and really avoid some of those operational challenges that we experience.

“t’s an important thing that we can’t do alone.”