What are Virtual Power Plants?
TLDR: A Virtual Power Plant (VPP) is not about having battery storage or energy generation located in one central place. Instead, it consists of numerous small power generation systems scattered across the country, all centrally controlled from a few locations.
What Are the Main Sources of Electricity in Australia?
In Australia, electricity primarily comes from coal, natural gas, hydroelectricity, and increasingly from wind and solar. Unlike many other countries, Australia does not have nuclear power generation. The downside of coal and gas is their reliance on hydrocarbons, contributing to pollution. Conversely, the disadvantage of wind and solar is their intermittent reliability. Hydroelectricity stands out as the most efficient and flexible form of energy generation, in addition to being non-polluting. Collectively, these diverse sources power essential appliances such as fridges, air conditioners, and ovens, highlighting our profound dependence on electricity.
Australia has three main electricity grids. The primary grid connects all states and the ACT, excluding WA and NT, which operate their own independent grids. The eastern grid is managed by the Australian Energy Market Operator (AEMO), though each state's grid is managed individually. The ACT falls under the jurisdiction of the NSW grid authority.
Until about ten years ago, the eastern grid was relatively straightforward to manage. Although occasional unexpected outages at power stations presented challenges, contingency plans typically addressed these effectively.
Today, two significant changes affect the grid:
Reduced daytime electricity demand.
Increased generation from renewable sources.
The decrease in daytime demand results from widespread adoption of photovoltaic (PV) solar energy, where Australia leads globally on a domestic level. Unlike coal, gas, or hydro, renewable energy can be unpredictable, comparable to an unreliable employee—capable when available but not guaranteed.
The original design of Australia's electricity grid catered to a unidirectional energy flow. However, with electricity now generated by end-users, the grid has had to adapt to accommodate multiple smaller, unpredictable energy inputs.
Australia, along with many other countries, is now navigating how to manage these variable energy inputs. The partial solution to this issue lies in energy storage. By capturing and storing renewable energy when it's abundant, we create a reliable source of power. This is often referred to as SWB—Solar, Wind, and Batteries.
What Role Do Virtual Power Plants Play?
Given this context, why are virtual power plants being promoted? VPPs bring predictability and stability to the grid by centrally managing numerous distributed PV/Battery systems via the internet. By granting control to the electricity utility, these systems collectively manage substantial energy generation—potentially 1-5 Megawatts (MW)—equivalent to a small gas or hydroelectric plant.
But what incentive exists for individuals allowing utilities to control their battery systems? The answer lies in financial benefits. Utilities might pay up to double the standard electricity rate by discharging batteries during peak demand hours, typically from 5:30 pm to 7:00 pm. This creates a win-win scenario: utilities smooth out demand, and battery owners earn additional income. On average, this occurs 4 to 5 times weekly, varying seasonally.
Battery owners retain control over discharge limits—for instance, setting a minimum battery level of 50%. This ensures the VPP management company cannot discharge batteries below that threshold. Each household can set different discharge limits, offering flexibility.
Participation in a VPP means engaging dynamically in the wholesale electricity market. If wholesale prices typically sit at 12c/kWh but spike to 35c between 5:30 pm and 7:00 pm, participants can profit by selling stored energy at higher rates. When battery levels drop, electricity can be repurchased at lower rates once prices stabilize.
The rise of VPPs directly results from increased renewable energy generation. Historically, power generation occurred at a handful of large plants; now, generation is distributed across many locations. VPPs consolidate these dispersed sources, effectively managing them as a single entity.
There's much more to explore about VPPs, electricity trading, and grid stability, which we'll discuss further in our next blog.
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