What is a Virtual Power Plant?

A traditional power plant (or power station) ramps generation up and down throughout the day depending on the demand from customers on the grid and signals from the market operator - which is AEMO in Australia.

A virtual power plant is the grouping together of many small sources of energy - like homes with solar and batteries and sending them signals to coordinate when to send power into the grid or when to store excess power in batteries.

In this way, lots of small customers are brought together through the power of the internet to act like a traditional powerplant - albeit with much more flexibility. The diagram below

Benefits of setting up a Virtual Power Plant

Customers can get reduced up-front costs for solar and battery equipment if they allow them to be used as part of a VPP. This is because the VPP operator is selling some of this capacity into the electricity market and is able to share some of those benefits with their customers.

The quality of power and reliability of the local grid may be improved by using these Distributed Energy Resources (DERs) for the benefit of the entire electricity system - not just an individual customer who might not even be home to use the energy when it’s needed most.

The utilisation of solar and battery can be improved to share excess power when it’s needed most or to store power in preparation for storms or potential disruption.

Some challenges of setting up a Virtual Power Plant

In order to be part of a VPP, you need to hand over control of your expensive solar and battery system to the VPP operator. This means that it might not be used to the best possible benefit to your own needs every day, but this is generally balanced by a better long term outcome such as the up-front discounts or ongoing rebates or payments for participation in the VPP.

You may be limited on exactly what equipment you can purchase or use as it needs to be compatible with the VPP providers systems. This might mean something as simple as buying a small add-on device that communicates with all of your existing equipment, or could mean that you can only buy one or two types of new systems that might not be your preferred brand or specifications.

The return on your investment is dependent on the outcomes from the Virtual Power Plant, which are subject to the many forces acting on the energy market themselves. Be aware that a VPP agreement might require you to participate for 1-5 years (or more) so read and understand the information you are provided before entering into a long term agreement.

When is setting up a Virtual Power Plant a good choice?

A VPP can generally be a good idea when:

• You aren’t experienced with operating solar or battery equipment and want to make sure it helps both you and the wider community or grid.

• You want to take advantage of reduced up-front costs and are willing to give control to a VPP operator.

Project examples for setting up a Virtual Power Plant

South Australia VPP Program With the support of the Government of South Australia, Tesla and electricity retailer Energy Locals are developing South Australia’s Virtual Power Plant (SA VPP), a network of potentially 50,000 solar and Tesla Powerwall home battery systems across South Australia, all working together to form Australia’s largest virtual power plant.

Simply Energy VPP Program As well as helping you maximise the benefits of your existing solar system, the purchase of Tesla Powerwall through a preferred installer means you are be eligible to join the Virtual Power Plant (VPP) energy plan, making your battery more affordable.

Tesla VPP Program The Tesla Virtual Power Plant connects a network of homes with Powerwall to work together in a co-ordinated manner to benefit your home while also supporting the grid. By using energy in your Powerwall and other homes who participate in the Tesla Virtual Power Plant, we can provide power to the grid when it is needed most while reducing the use of fossil fuels and lowering costs across the community.

Other guides and resources

Virtual Power Plant case study - Explores a scenario focused on the aggregation and sharing of distributed energy through a VPP.

ARENA Introduction to Virtual Power Plants - Explanation of virtual power plants and why they matter.

Evergen Overview of Virtual Power Plants Virtual Power Plants (VPPs) have emerged in the energy sector to allow distributed energy resources (DERs) to be aggregated and managed as a single entity. While there is no globally recognised definition; we define a VPP as a network of decentralised generators, flexible consumers (or loads) and storage.