Virtual power plants are a growing renewable energy solution, writes Anson Zhang. What are the next steps to enable a VPP-powered future?

Energy storage and production have been hot topics in the past few years. In light of policy renewal and growing awareness for sustainable living, we have witnessed technological innovation dedicated to energy resource sharing and balancing. One example that has taken off in the past decade is the virtual power plant (VPP), a network of decentralised solar power-generating sources (solar and storage systems) that work together to provide significant combined resources to the energy grid.

Off-grid, independent renewable generation, such as a VPP, is critical to achieving a zero net emissions target. In Energy Networks Australia and CSIRO’s co-developed electricity network transformation roadmap, it is estimated that by 2050 up to 45% of Australia’s energy demand will be supplied by customer-owned generators.

A VPP works by aggregating power from heterogeneous distributed energy resources to enhance power generation, then selling excess power back to the grid to maximise energy income. The demonstrated benefits, ranging from meeting peak electricity demands and providing reliable power to returning dollars to customers’ pockets, set VPPs up for a promising future in becoming a major renewable energy solution across the globe.

The road hasn’t always been smooth

Despite the many virtues of VPP, its growth has been hampered by external factors. The biggest bottleneck has been the high cost of batteries used to form the solar battery system. Inevitably, this led to low penetration rates of battery ownership across the market, subsequently impacting the development and implementation of value-stacking and network support services, such as contingency frequency control ancillary services (FCAS). This in turn influences the market’s view on battery investment.

The growth of VPPs has also been stifled by an underlying scepticism as to the novel concept, as well as battery owners’ reluctance to share their stored energy with an aggregator. Paired with the high cost and the limited number of batteries available in the country, what we’re seeing today is a map of scattered battery locations and investments across Australia, rather than an integrated network to keep energy sourcing truly cost-effective.

What are the opportunities ahead?

The good news is that we can expect the cost of batteries to dip over the next few years. This is mainly due to the rise of new driving technologies, such as electric vehicles (EV), which has seen local sales skyrocket seven-fold compared to a year ago, according to FCAI. We see the price adaptation of batteries working in the same vein as that of PV panels. The International Renewable Energy Agency estimates that between 2010 and 2019, the levelised cost of energy generated by PV panels dropped by 82%, thanks to mass-scale production and advanced manufacturing capabilities. As the major economies adopt EVs, falling battery costs will pave the way for a rollout of VPPs.

We are also seeing a steady increase in the number of battery installations in Australia. SunWiz estimates that in 2020, more than 31,000 batteries were installed in Australian homes, a 20% increase from 2019. Behind the scenes, a number of programs and initiatives have been put in place to support the investment of home batteries, such as South Australia’s Home Battery Scheme and the Solar Homes Program by the Victorian Government and community battery initiatives.

These rebate schemes have proven successful and should be fostered across the nation. Further, if we implement rebate initiatives in targeted regional areas with limited electricity infrastructure, we may achieve two key objectives – create many more jobs for the solar and battery installation fields and save money on electricity infrastructure costs while allowing the communities to come off-grid by generating their own clean power.

The framework must also include close collaboration among different stakeholders in the energy sector. The key issue is not the lack of investment but the scattered investments across the country, which can practically be solved by having a consistently sufficient number of batteries to support further battery installations. As such, DNSPs and battery installers must work closely with the appropriate level of government to aggregate and distribute financial resources in a cost-effective way.

While an institutional investor may enjoy the luxury of timing their entry into the market to maximise market return, as entrepreneurs, we must plan to ensure we are ready when the wave hits. Issues born out of the era of renewable energy can only be solved by innovations in renewable technologies. There is no way of leaning back on dirty fuels for an answer.

Anson Zhang is the chief executive officer of energy retailer Discover Energy.