Virtual Power Plant (VPP): What are they and their benefits?
This article was originally published by Solar Choice Australia on 29th July 2021.Some of you may have heard of the term “Virtual Power Plant” in recent years within the solar system and battery industry. In this article, we’ll explain everything you need to know about VPPs and how it’s something you could benefit from in the future.
What exactly is a Virtual Power Plant?
A Virtual Power Plant or VPP is broadly defined as an interconnected and distributed network of a wide array of energy sources, predominantly solar and battery systems (This can include other energy sources such as gas generators and electric hot water systems among others).
The group of interconnected solar and battery systems can perform services that help the grid be more stable and efficient. The VPP operator centrally controls and monitors all the batteries within the network. Many of the VPP operators in Australia are also electricity retailers so they have access to the electricity wholesale market, however a VPP can operate independently of who your electricity agreement is with.
Generally speaking a VPP is designed to create value for both the VPP operator and the participants in the scheme – usually through sharing of the financial benefits the VPP creates.
What are the uses and benefits of a VPP?
The playing field for VPPs is defined by the current regulatory system. This is currently under review, but as we speak the current options for VPPs to generate money are explained below.
1. Selling power at peak demand periods:
The most common and obvious source of revenue for a VPP is to sell power by discharging batteries at times of peak demand. While you have a fixed rate or fixed time of use rates for energy from your electricity retailer, the wholesale market is constantly moving.
The wholesale electricity price usually fluctuates between 4c per kWh and 10c per kWh, but at different trading intervals within the year the price can jump much. For example on the 17th May 2021 the wholesale electricity price was around $6 per kWh at 6pm in NSW, VIC and SA.
At this point all VPPs in each of those states would have discharged as much power into the grid as possible earning $6 per kWh. They can offer a very attractive rate back to the participants of the VPP for each kWh they contributed and still make a reasonable revenue.
2. Helping create a more stable grid:
All power networks require energy generation and demand from electricity to be in balance in order to operate safely and efficiently. If there is a change or variation in either side of this equation then this can lead to power failures and blackouts.
Along with the major power stations there are smaller, more nimble and flexible power plants (often gas) that can ramp up or down at short notice. These plants operate in the Frequency Control Ancillary Services (FCAS) markets.
In some cases plants in this market are paid to ‘stand-by’ and be ready to switch on at short notice. VPPs can operate in this market as they can rapidly discharge power into the grid or charge power from the grid.
In some cases these batteries within these types of arrangements will not be able to discharge below a certain level as they need to have sufficient power on stand-by to meet grid’s requirements.
How you are actually paid for your participation in a VPP demands on how each program has been set up. Some programs offer a benefits sharing scheme through an attractive or bonus Feed In Tariff each time the batteries are utilised. Other schemes offer an upfront discount off the cost of the battery or a fixed payment each month.
