Competition a key to VPP development: ACCC report

The Australian Competition and Consumer Commission’s most recent report on the electricity market provides good insights into the extent of emerging energy services such as virtual power plants (VPPs), electric vehicle tariffs and behavioural demand response programs.

As highlighted by the focus in the ACCC’s report, retailers are actively engaging in innovation and new energy services, such as VPPs (we have previously outlined the activities of retailers in this space - Getting innovation into the system: A retail perspective).

Here we look at what the report found in relation to the emergence of VPPs, which are expected to play an important and growing role in the grid as more homes install solar with battery storage, the benefits that can accrue to customers, as well as potential areas for considerations to support this emerging new market.

Growing Potential

There are 138,793 battery and solar installations installed currently at homes and businesses across Australia[i]. The number of customers involved in VPPs is estimated to be 38,200 in the mainland National Electricity Market (NEM) states[ii]. Given there are around 10 million residential and small business customers across those states of New South Wales, Victoria, Queensland and South Australia, it remains a small market. While VPPs are coming off this low base, one bright light is that they have grown at nearly 22 per cent every 6 months in the past 2.5 years to January this year, according to the ACCC report. VPPs represent a nascent, but healthily growing market which is likely to have gained further impetus from the Federal Government’s Cheaper Home Batteries Program that came into effect on 1 July this year. That program, which subsidises the purchase price, requires eligible batteries to be VPP-ready. The Australian Energy Market Commission has reported around 20,000 batteries were installed and registered in the month since the start of the program[iii], so the VPP potential can only increase.

To achieve AEMO’s current Integrated System Plan (ISP) capacity of coordinated CER, storage will need to reach 3.7 GW in 2029-30 and increase tenfold to 37 GW in 2049-50.  If achieved, it is projected it would account for up to 66 per cent of the NEM’s energy storage nameplate capacity. But we are a long way off that with the ACCC estimating VPPs accounted for only 138 MW in 2023-24.

Competition the Key

More positively the ACCC, following a survey of providers, believes VPPs could gain the interest of more than 50 per cent of customers between now and 2030, particularly with an expectation of a stronger demand for battery installations based on government support for VPPs.

Competition is expected to help drive greater take up of these services and the ACCC has found positive signs of that competition to deliver virtual power plant services.  The Commission found substantial product differentiation with providers offering plans of varying levels of complexity to serve different types of consumers. It noted currently newer and smaller energy service providers are playing a key role in supplying virtual power plant services with over 75 per cent of customers it had identified being served smaller providers at this early stage.

The take up of VPPs varies by state as shown below. South Australia was host to early VPP developments. In 2017 AGL’s VPP-SA project was the first of its scale to be announced internationally[iv].  Subsequently, a SA Government and ARENA announced an initiative with Tesla to provide public housing tenants with battery storage systems. Currently around 7000 households are involved in the SAVPP program, which is now owned and operated by AGL. Customers involved receive significantly discounted power prices, while the solar and battery assets are coordinated and can also help stabilise the grid. AGL has said it is exploring ways to expand the benefits of the model to more energy users, including social and community housing residents across Australia.  

Figure 1: Rate of uptake by State

One key and obvious benefit of VPPs is lower power bills (a table of potential benefits to both customers and the grid is at the bottom of this article).  Whilst customers who have installed a battery and solar system save on their electricity bills, the ACCC estimates the increased savings stemming from involvement in VPPs by those households range from $56 in Victoria to $197 lower in New South Wales[v] (figures are for quarter 3 of 2024). The additional savings for customers involved in VPPs compared to other customer types is shown in more detail in figure 3 below, while the bill component benefits can be seen in figure 2.

Figure 2: Bill comparisons by Component

Figure 3: VPP Participants Have Lowest Bills

As mentioned above the engagement of customers with VPPs is still in its infancy and relatively low.  While the volume of electricity virtual power plant operators are coordinating has risen by more than 75 per cent for the two years to 2023-24 it totalled only 138 MW for 2023-24. The average amount of electricity dispatched into the grid per customer per year has remained reasonably steady and a small amount at around 16 kWh over the three years to 2023-24 (the average usage for a residential customer without solar in 2023-24 was almost 4200 kWh according to the ACCC’s data). As a result, VPP coordination is not currently materially impacting a household’s ability to self-consume the power from their solar and battery systems. But the ACCC notes VPP operators can have access to more of the battery capacity under contractual arrangements and if the level of usage of a battery’s capacity were to increase over time it could have an impact on the consumers ability to self-consume.

There are a range of contracts offered to customers and the ACCC found that risks for customers were lower for offers where the consumer had more control, shorter contract terms and limited lock-in fees.

While the ACCC flags that competition is central to maximising consumer benefits from reforms, it has also flagged the need for guardrails to protect consumers when they participate in new energy services given the significant investments they make when purchasing solar and battery systems.

The ACCC also warns that VPP products involving financed solar panels or batteries, and those hosting 3^rd party provider owned resources, can carry higher risks (such as long contracts, high exit fees, or where a customer enters payment difficulties).  Financing can be through mechanisms like Power Purchase Agreements where in exchange for providing, installing and maintaining a solar system, the consumer agreed to buy energy from the system at an agreed price for an agreed period. Retailers can also offer solar leasing agreements where the solar provider installs the system in exchange for the consumer agreeing to make periodic repayments on the system for an agreed period.  A Solar Power Purchase Agreement or Solar Leasing Agreement benefits consumers by giving them access to solar energy where they otherwise wouldn't be able to afford to purchase and maintain the system.

“Bring your own battery” programs pose the least risk.  The ACCC says these findings highlight consumer-protection gaps under the National Energy Customer Framework and Australian Consumer Law. 

The ACCC has proposed consumer protection measures but in considering these we need to be mindful to avoid inadvertently blunting some of the very market forces that drive innovation and competitive differentiation and that the Commission sees as important to the further development of these markets.

Some of the key risks could include:

• Increased Compliance Burden: Smaller or newer entrants may struggle to absorb the costs of designing, auditing and reporting against strict “no worse off” guarantees, asset safeguarding protocols and control limits all making it harder for them to compete with established players.
• Reduced Product Flexibility: Rigid guardrails on how much external control a provider can exercise over DER assets may limit the range of control schemes, tariff structures or automated response algorithms that aggregators can deploy, potentially stifling novel and even existing viable VPP operating models.
• Guaranteeing “no worse off” and fair reward: May force providers to accept lower expected returns, or to build in larger financial reserves for worst-case customer outcomes. That margin squeeze can discourage investment in advanced forecasting, optimisation platforms or additional CER integration.
• Barriers to Differentiation: If all providers must offer very similar baseline protections and reward mechanisms, it could lead to a “race to the middle” in product design, reducing scope for creative value propositions such as performance-based sharing of wholesale arbitrage gains.
• Risk Aversion Over Innovation: Concerns about hefty exit fee penalties or contract complexities may make providers more reluctant to pilot novel financing models (e.g. lease-to-own battery arrangements) or to bundle multiple flexible services under a single agreement, for fear of regulatory push back if a pilot underperforms.

Balancing consumer safeguards with a regulatory environment that still rewards risk taking and rapid deployment will be the key to new energy services. Otherwise, well intentioned protections could end up entrenching incumbents, slowing innovation, and depriving customers of the next generation of energy services.

Benefits of VPPs

[i] Quarter 3, 2024, ACCC July 2025 Report

[ii] Clean Energy Regulator data

[iii] Battery boom highlights need for market adaptation, AEMC analysis finds. AEMC Media Release 14 August 2025.

[iv] ACCC Inquiry into the National Electricity Market July 2025 Report.

[v] AGL Virtual Power Plant - Australian Renewable Energy Agency (ARENA)