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How do Virtual Power Plants Work?

How do Virtual Power Plants Work?

A Virtual Power Plant, or VPP, is a network of connected homes each with their own solar panels system and battery storage.

VPPs are an exciting technological innovation in electricity distribution.  Still relatively new, they promise to improve the resilience of the national electricity grid and provide fairer compensation for battery owners for their solar exports.

On this post:

  • How do VPPs work?
  • The money side of VPPs
  • Benefits provided by VPPs
  • I want to join a VPP. Does my location matter?

How do VPPs work?

Batteries in a VPP are connected using smart software.  For the VPP to work, these batteries must be VPP-compatible and meet certain performance, security, and technical standards.

Power from VPP-connected batteries is drawn on to provide support to the grid at times of high demand.  For example, on hot sunny afternoons when people put on their air conditioning, there’s often a huge demand for grid power.  When these peak demand events occur, the grid can struggle to cope.

That’s where the VPP kicks in, supplying additional power at a moment’s notice.

The VPP’s software identifies the spike in demand. It responds by drawing on power from batteries in its network and sending that power to the grid.

The grid is then able to meet the peak demand, thanks to the stored solar electricity from hundreds of household batteries.

Essentially, VPPs act as power generators, only they don’t generate power.  They simply collate power from lots of different sources and supply it on demand.

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The money side of VPPs

VPPs are a cheaper way of supplying electricity to the grid at times of peak demand.  The alternative is for electricity retailers to purchase from wholesale national electricity market, often at vastly inflated spot prices.  These spot prices can go as high as $14,500 per MWh.

Avoiding spot prices

Naturally, electricity retailers want to avoid high spot prices. They do this by entering contracts to purchase sufficient electricity to cover projected peaks in demand.

However, this is never an exact science.  When peak events occur, sometimes retailers need to bring on additional capacity and purchase on the spot market.

Whilst households don’t get charged directly for electricity purchased at spot prices, eventually this flows through to higher electricity bills if left unchecked.

How VPPs get paid

The VPP receives compensation from the wholesale electricity market for satisfying the spike in network demand; and passes on a portion of this compensation to participating households.

How households get paid

VPPs reward participating households by compensating them for the power the VPP draws from their batteries.

This amount is generally more than they household would receive from the solar feed-in tariff.  This is because the value of the household’s stored solar energy is a lot higher when it can be called on instantly to satisfy a peak demand event.

Each VPP program is different and offers different levels of compensation.

Benefits provided by VPPs

VPPs provide benefits to participating households, the community, and the environment.

  1. Benefits for VPP households:

Households participating in a VPP benefit through reduction in power bills, and compensation for sharing their surplus solar electricity.

Each VPP program works differently. Some offer upfront discounts on the cost of a battery and ongoing financial incentives for taking part.  One VPP even provides a longer battery warranty.

They all utilise household batteries differently, some only drawing on the battery a certain number of times per year. They also have different exit fees so reading the fine print is important.

  1. Benefits for the community

The community benefits from VPPs through a more reliable power supply as power outages caused by spikes in demand become less frequent.  Also, the quality of power supplied to homes, businesses and other organisations improves as VPPs can call on batteries to address local peaks in network demand.

  1. Benefits for the environment

Current, around 75 per cent of grid electricity is from fossil fuels; most of that from coal-fired power stations.  By building VPP networks across Australia, reliance on electricity from coal-fired power stations will diminish.  As VPPs provide an injection of clean energy into the grid, this displaces electricity from dirty generators.  As a result, the amount of clean electricity in the grid increases, which is better for the environment.

I want to join a VPP.  Does my location matter?

Technically, location shouldn’t matter when it comes to joining a VPP as they are software-based entities.  So, if you are a grid-connected household on the national electricity grid (that’s everywhere except WA and the Northern Territory), you should be able to join a VPP.

But not all VPPs operate Australia-wide – or even right across the national electricity grid.
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One that does is the Tesla Energy Plan for Powerwall owners.  And it’s one worth looking at, as it offers good benefits to participating Powerwall households as well as an extra 5 years warranty on the Powerwall battery.  Chat to us if you’d like to find out more!

Also worth mentioning is that some state governments, including the Victorian Government, have organised approved VPP programs [link to post on this topic] which comes with a greater level of customer protections and bigger battery rebates.

Get in touch

Getting battery storage with your solar panels provides a host of benefits, joining a VPP is just one of them!  Get in touch for expert solar and battery advice and a quote.  We can also advise on the VPP programs that are available in your area.

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