Only by guaranteeing battery-owners flexibility and fair value will architects of virtual power plants realise their goals, writes Mike Roberts.

For the past few years I have spent a lot of time thinking about electricity, but the installation of a solar PV system on my house last week has completely transformed how I think about its role in my life. In our home, electricity is no longer a scarce resource generated at great cost to the planet; it is now plentiful and free, but with a caveat: although we’d struggle to consume everything being generated on the roof every day (even with the new aircon), suddenly, it matters when we use electricity.

Although our household energy use is relatively low, we use electricity when we need it. This means that, apart from doing the washing in the middle of the day, there’s a limit to how much we can reduce the evening consumption.

The next step on my “solar journey” is to explore ways of storing my newfound daily energy wealth for use during darker times. When the aircon arrives we’ll try storing “coolth” to moderate the hot evenings. Like many Australian houses, however, ours is poorly insulated. So, until we can afford to replace the gas hot-water with an efficient electric heat pump, thermal storage may be impractical.

My thoughts are therefore turning to a battery: would it help us to take control and use more of our solar generation, rather than letting a retailer sell it on to the neighbours at a tidy profit? And does it make sense financially? Maybe I should wait?

The right time to buy

My experience is far from unique. Over the past few months, my colleagues at the University of NSW and I have talked to 47 energy users in interviews and focus groups. Some 60% of them have solar but only a few have invested in batteries. When they have it’s usually to ensure a secure energy supply, increase their solar self-consumption or their energy independence. Like me, many others are waiting for “the right time” to buy a battery, which they variously define as: in three-to-five years’ time; when the price of a battery drops; when they are no longer offered a 21c feed-in tariff; when they can access a government grant; after they have installed a larger solar system, or; when they can afford an electric vehicle.

Our research is part of a project being led by Solar Analytics and funded by the NSW Department of Planning and Environment’s Emerging Energy Program. We wanted to discover the conditions under which energy users would participate in a virtual power plant (VPP).

VPPs are emerging as a promising new technology to help solve many of the issues facing the electricity system, including the challenges of adapting to high penetrations of distributed, intermittent, renewable generation.

Small household batteries, installed behind the meter, can be orchestrated to buy and sell electricity on the wholesale market, respond to critical demand peaks in the distribution network and provide frequency and voltage control. Distribution network service providers can reduce or avoid costly network upgrades, while battery owners access a “value stack” of income streams to pay back their investment costs. It’s win-win, right?

While we’ve been learning from consumers, Solar Analytics has been assessing the size of this value stack. More than a thousand NSW rooftop solar systems with Solar Analytics monitoring have been used as a testbed to simulate the operation of distributed batteries and to calculate the potential revenue available through different modes of operation, participating in various markets. Access to such markets is being developed through a partnership with GreenSync, while data and information exchanged with the three NSW distribution network companies is helping us to assess the network impacts and benefits.

Making introductions

The first thing we discovered in talking to energy users is that very few have a clear idea of what a VPP is, which is unsurprising for such a new concept. Most of our participants, even Solar Analytics’ highly energy-engaged customers, understood it as a way to share their excess solar generation, perhaps through a microgrid or local energy trading.

Once the concept was explained, a few were enthusiastic about being part of a VPP, but many were ambivalent.

For people who have bought – or are considering buying – a battery, whether for energy security or to increase solar self-consumption, ceding control of the battery to an external organisation requires them to upend their understanding of what the battery is for, and their relationship to energy.

Rather than being the next logical step on their “solar journey”, VPP participation may require a conceptual U-turn. Paradoxically, energy users who have yet to start on this path may find it easier to engage with the idea of a battery as an automated black box that delivers financial benefits. 

Nevertheless, although the potential of a VPP to reduce the payback time is attractive to potential battery purchasers, only a small minority of our participants considered the VPP as a purely financial proposition. Most were prepared to sacrifice some of the financial benefit to retain some control over the battery: a percentage of capacity reserved for household use or a limit to the number of “VPP events” each year, and – almost universally – the ability to opt-out from individual events or from the VPP itself.

Fortunately, initial findings from the VPP simulation revealed that more than 40% of the value of a VPP was generated on just seven days of the year, so there is potential for users to participate in a VPP and maintain control over their battery on all other days.

The FCAS markets also present an opportunity to combine healthy returns with minimal disruption to consumer autonomy. Unlike wholesale energy trading, which regularly charges and discharges the battery to capitalise on price differences throughout the day, contingency FCAS can pay users effectively for their batteries to be on standby, just in case there is a sudden disruption to generation or load which causes a frequency disturbance. Such disturbances don’t occur very often and, when they do, it usually only takes a few minutes of reserve generation or storage to bring the frequency back to its tightly controlled 50Hz value.

The aggregated operation of these distributed batteries allows the certainty of power availability that would not be possible for individual systems. The modelling suggests that, with this regime, it may be possible to operate with minimal impact on typical self-consumption operation, while increasing the market value of that operation by more than five times.

The need for transparency

A strong theme that emerged from the research was the need for transparency. For some this means having detailed information about the operation of their battery, while others need to understand how the financial benefit of the VPP is being shared. Understanding of the broader (network, community and environmental) benefits of a VPP would make some of our participants more likely to relinquish control over their battery. The well-documented low level of consumer trust in private energy companies – especially retailers – was also evident; many expressed a preference for a VPP operated for community benefit by the government or a non-profit organisation.

These findings seem to conflict with what has been the preferred model in many trials to date – an up-front discount on a battery purchase in exchange for a binding contract of many years, allowing the VPP operator to control the battery. The research suggests that a bring-your-own-battery model with ongoing sharing of revenues may be more attractive to consumers. Such a model, without a fixed-term contract, would put the onus on the operator to continually demonstrate value, through financial returns, transparency and respect of (diverse) consumer needs and motivations.

If we get this right, and business models are designed with energy users and battery owners at the centre, VPPs could play an important role in the transition to a distributed energy system while helping people like me get more out of their solar than is possible with a battery alone.

Mike Roberts is research associate at the School for Photovoltaic and Renewable Energy Engineering at UNSW and a solar analyst at the Australian PV Institute.

Co-authored with Dr Sophie Adams, research fellow in the Arts and Social Sciences Faculty at UNSW, Declan Kuch, a fellow in the School of Humanities at UNSW and the Institute for Culture and Society at Western Sydney University, and Jonathan Dore, head of data analytics and research at Solar Analytics.