All About Virtual Power Plants (VPPs)
Last Updated: 6th Nov 2024
By Finn Peacock – Chartered Electrical Engineer, Ex-CSIRO, Founder of SolarQuotes
Some of the companies offering VPPs.
Solar batteries are all the rage these days. But although battery costs are falling, home energy storage still isn’t cheap. For example, in November 2024, a Tesla Powerwall 2 costs $12,100 before installation, which can add thousands more. But the Powerwall isn’t the only show in town.
You can run the numbers for yourself regarding payback using my easy-to-use solar and battery calculator, which separates the savings from solar panels and a battery system. If you already own solar and want to calculate the savings of adding a battery to your system, so long as you have a smart meter you can use my “Add a battery” calculator.
But there’s a potential solution to further improve the economics of home energy storage: Virtual Power Plants, or “VPPs”.
What Is a VPP?
A Virtual Power Plant consists of a network of distributed solar power and battery systems and may include other energy resources and controlled loads (such as electric hot water systems).
These Distributed Energy Resources (DERs) are coordinated by a central VPP operator that releases some (or all) of the batteries’ stored energy into the grid during periods of peak demand when wholesale electricity prices are high.
Besides selling electricity, they also make money by charging batteries when electricity prices are negative. They may also receive payments for charging or discharging batteries to help stabilize the grid’s frequency and keep it running smoothly. Providing these services can be a very lucrative game – for the operator.
In a nutshell, you give up control of your battery to a third party when it becomes part of a virtual power plant. In return, you can potentially receive benefits ranging from an upfront discount on the cost of a battery, payments that are either fixed or based on battery energy discharged by the VPP, a higher solar feed-in tariff, or some combination of these.
It’s really important to read the small print on any VPP offer, as some can be quite sneaky about how they pay you for surplus solar energy sent to the grid.
Our VPP Comparison Table lists all of the virtual power plant programs available across Australia we’re aware of.
What Are The Pros And Cons Of A VPP?
Pros:
- Some VPPs offer an upfront discount on the cost of a battery. This can take a battery from being ‘too expensive’ to ‘worth considering’. The value and format of the discount vary between programs, with some offering much more than others.
- Several virtual power plant programs offer payments for energy your home supplies to the grid. These can take the form of higher than average solar feed-in tariffs or payments for energy discharged from your battery to the grid. Some offer variable payments that can go higher (some as high as $1 per kWh or more!) based on the wholesale price of electricity.
- Many VPPs provide fixed payments. These may be paid monthly or quarterly.
Cons:
- Many VPPs are BYOB – “Bring Your Own Battery”. This means a) there’s no upfront discount, and b) the battery you already have might not be eligible.
- Virtual power plant programs offering above-average solar feed-in tariffs only marginally improve battery economics. One reason why is that homes with batteries export less energy than homes without them.
- VPP arrangements offering variable payments for discharging a battery to supply the grid use dubious assumptions to make their economic case. It’s unclear how often such ‘grid events’ will happen and how much the participating homeowner will benefit.
- You’re giving up control of your battery to someone else. Most people buy batteries to regain control of their energy usage, not let someone else meddle with it :).
- Many VPPs can hammer your battery as hard as they like, which shortens its lifespan.
- Many VPPs leave no (or minimal) reserve battery capacity available for the system owner. This is an important consideration for homeowners who think having a battery = blackout protection.
Should You Join A VPP?
I was a participant in AGL’s VPP here in Adelaide. In 2016, I acquired a Tesla Powerwall at a massive discount compared to what’s available now. I paid about $4,000 fully installed. That compares to $15,500 for a fully installed Powerwall today.
After I served the minimum contract period (5 years), I left the AGL VPP and joined the Tesla Energy Plan, which offered an excellent 13c per kWh daytime rate – from 10 am – 3 pm. With two electric cars, and both of us working from home, I liked the idea of a cheap daytime grid rate so we could still cheaply charge the cars over long Adelaide winters when the solar panels were struggling.
However, Tesla has recently upped their energy prices considerably, and their rates are now comparable to non-VPP retailers – so I expect I’ll soon leave the Tesla VPP.
Me posing with my Powerwall
Over a full year, Tesla charged my battery with 1,100 kWh from the grid and discharged 380 kWh from my battery into the grid. So my battery went through about 100 more cycles than if I wasn’t on their VPP. I guesstimate the cost to me of the extra wear and tear at $200.
So would I recommend one of the current VPPs to a solar power system owner who wants a battery but can’t justify it at current prices?
Not at the moment – but maybe soon. The touted financial benefits of joining any VPP available at the time of writing aren’t all that impressive to me compared to the extra wear and tear on your expensive battery. But this is changing. NSW has just introduced payments for joining VPP and other states could soon introduce something similar. South Australia already has a little known incentive which is not well organized. But if you have a battery or are planning to get one, it’s worth checking what incentives are available in your area. They can be enough to make joining a VPP worthwhile.