Beyond the Rebate: Battery Policy, VPPs, and Household Returns

News that a re-elected Labor Government would reduce the cost of home batteries by 30 per cent through the small renewable energy scheme (SRES) attracted responses, ranging from avid support to concerns it would leave some unable to participate, like renters and vulnerable customers. If this policy proceeds post-election,  it will increase the appetite for home storage to take advantage of rooftop solar. 

The proposal would see a re-elected Albanese Government buy all the additional clean energy certificates created and retain them to avoid any impact on power bills or the market for certificates.  While that is a positive, and the plan could improve the situation for individual households, and additional battery capacity could help reduce demand on the grid, a greater value will be realised if the storage capacity is also harnessed and coordinated to deliver energy into the grid in the form of Virtual Power Plants (VPPs). Retailers have already linked thousands of homes to coordinate power output. There are a range of VPPs now available through retailers and a more detailed list can be found here.

Aside from the ALP commitment, which requires eligible batteries to be VPP capable, governments in New South Wales and South Australia already offer incentives for people to be part of a VPP, while the Australian Energy Market Operator (AEMO) has pointed to consumer energy resources playing a major role in delivering supply to the grid through initiatives likes VPPs.

The Australian Energy Market Commission (AEMC) has introduced a rule to allow aggregated consumer energy resources (CER), distributed energy resources and price-responsive load to be scheduled and dispatchable in the national electricity market (NEM). It introduces a framework known as ‘dispatch mode’ into the NEM which allows currently unscheduled price-responsive resources to be scheduled and dispatched. Dispatch mode will start in 2027.

By the end of 2023, home battery systems accounted for more than 2700MWh’s of capacity, accounting for around 0.2GW of storage.[i]  To achieve the current ISP capacity of coordinated CER, storage will need to rise from today’s 0.2 GW to 3.7 GW in 2029-30 and increase tenfold to 37 GW in 2049-50. The availability of solar panels on around 4 million Australian homes and businesses, totaling nearly 25 gigawatts (GW) of capacity, indicates the uptake of VPPs has enormous unrealized potential.  

So who’s interested in a VPP?  Customers who participate in a VPP are typically homeowners and businesses that have invested in energy resources, such as solar panels and battery storage systems, or demand responsive assets, like storage water heating and EV’s. The typical customers in a VPP include:

1. Households with Solar and Batteries: They are typically (though not entirely) more tech-savvy and motivated by sustainability goals, along with the potential to save on energy costs.  This of course flattens over time, as early adopters are replaced by the early majority, whose motivations may be more about convenience and energy cost savings.  VPP’s tend to further categorise these as:

• • Households with solar panels: Many participants have solar PV systems installed on their rooftops who both consume and produce energy (solar generation) and participate in VPPs to either sell excess energy back to the grid or optimize their own energy usage
  • Households with battery storage: Customers with home batteries (such as Tesla Powerwalls or other brands) are particularly valuable to VPPs, as their stored energy can be used during peak demand times.
  • Households with both solar and battery storage: Participants in VPPs tend to be early adopters of renewable energy technologies, like solar, storage, or even electric vehicles.
  • Households with demand response: Demand responsive assets, like storage water heating and EV’s, can use or drop energy use without impacting lifestyle.

2. Small to Medium-Sized Businesses with solar and batteries and demand response: Businesses are less likely to be owner occupiers, and many commercial sites are multi tenanted, and businesses at such sites may not have aligned incentives.  Nonetheless, these businesses represent a significant opportunity for VPPs as they are generally larger energy users and producers.

• • Businesses with solar panels or battery storage systems are also common participants in VPPs. These businesses use the VPP model to manage their energy consumption and costs, as well as to help stabilize the grid during peak times.

3. Large-Scale Commercial Installations:

• • In some cases, larger commercial or industrial entities that have significant energy generation or storage capacity may also participate in VPPs, and can provide substantial single site contributions to grid stability.

All of these customer classes essentially provide "flexible" energy resources, allowing energy to be dispatched from their solar systems or batteries at critical times, such as during peak demand periods or grid emergencies, in exchange for financial incentives or savings on their energy bills. 

What’s in it for me ?:

Is VPP participation worth it?  What is the quantum of the financial incentives and savings likely to be for households participating in a VPP? The amount of money a household with solar and battery storage can save annually by participating in a Virtual Power Plant (VPP) depends on several factors, including the size of the solar system, the capacity of the battery, the energy consumption patterns of the household, and the specifics of the VPP program they choose.  Larger participants in VPP’s or Demand response are generally managed through bilateral contracts between their retailer or some other third party, and themselves, so visibility is often lower.  However, we can estimate some savings based on general trends and available data.[1]

Typical Savings Range:
Households could save anywhere from $100 to $1,000+ per year on their electricity bills through optimising their energy use.  This range is so varied because it depends so heavily on installed capacities, electricity rates (which vary widely by region) and the usage patterns.  These savings are typically available for providing one or more of the following:

1. Network Services Payments (if available in the VPP program)

• • VPP participants can receive payments for allowing their battery storage to be dispatched back to the grid during periods of need to mitigate grid instability.
  • Returns on participation can be from as low as $20 per year, but more broadly they can range from around $100 to $300 per year, depending on how frequently their battery is used.

2. Excess Solar Power

• • Households with solar systems can sell excess power back to the grid, typically through feed-in tariffs.
  • Depending on the feed-in tariff rate, a household might earn $200 to $500+ per year by selling excess energy back to the grid.

3. Battery Participation Incentives

• • Some VPP programs offer additional incentives for households that allow their batteries to participate in grid-balancing activities, such as discharging stored energy during peak times.
  • These programs could provide an additional $50 to $250 per year for battery participants, depending on the program's specifics.

4. Self consumption and electricity price arbitrage

• • The value of foregone imported consumption by using their own power is likely still the biggest single return for most people investing in their own energy infrastructure.  We have not included self consumption ranges when determining the value of VPP participation because it occurs without a VPP.  There is a case that the VPP can even optimise this return but we have not attempted to analyse that here
  • Electricity price arbitrage occurs in some cases, meaning that participating in a VPP allows customers to buy electricity at lower rates and store it in batteries for use when prices spike. This process is akin to arbitrage, buying low and selling high, and it can increase long-term savings.  Again, we have not attempted to analyse that here.

So in a very inexact estimation of annual payments for a Household with Solar and Battery participating in a VPP (excluding self consumption and energy price arbitrage) we add:

• Grid Services Payments: $100 to $300+
• Revenue from Excess Solar Power: $200 to $500+
• Battery Participation Incentives: $50 to $250

Which gives us a:

• Low Estimate: Around $350 per year
• High Estimate: Around $1,050 per year

Conclusion:

It is important to note that these figures are very much estimates, and actual savings can vary significantly depending on factors like the local energy market, program incentives, and household consumption behavior.  All that it really shows is that the case is positive VPP trials do show that aggregated CER can provide not just generation, but demand response, contingency frequency control and ancillary services (FCAS) and network services in real time; real benefits for all.  This needs to be balanced against consumer behaviour which is largely dominated by serving the household first and maximising the self-consumption of rooftop PV, and making sure there is a full battery for contingency; real benefits for me.  Building trust that users can earn meaningful payments for allowing their systems to be accessed and dispatched by a third party operator, without visibly impacting their household energy needs, will be critical to continued and future participation in VPP’s.

[1] We examined the broad outcomes of the Tesla Energy Plan (SA VPP), the Simply Energy Plan (SA VPP), the AGL VPP (generally available in most States) and the Powershop and Energy Australia VPP Plans which were also generally available in most NEM States when applied at a small customer level. 

[i] https://www.energycouncil.com.au/analysis/battery-storage-australia-s-current-climate/