The World’s Biggest Virtual Power Plant - What is a Virtual Power Plant Anyway?

VPP_diagram.pngThe South Australian Government recently announced a deal with Tesla to build a 250MW virtual power plant and in doing so, have ushered in the the future of the electricity network - but what is a virtual power plant and why are they the future?

The South Australian Government recently announced a deal with Tesla to build a 250MW virtual power plant and in doing so, have ushered in the the future of the electricity network - but what is a virtual power plant and why are they the future?

A virtual power plant or VPP uses thousands of homes with solar panels and batteries to collectively store energy generated by the sun - it could also include external grid-scale batteries and other distributed energy resources such as wind turbines.

At peak demand, a VPP can provide some of it’s capacity back into the grid, potentially as much as traditional gas,coal, or geothermal generators, lowering the cost of electricity and improving grid-resilience. The rest will be self-consumed by the host households, lowering their demand.

Like the sound of that? The theory is all good and the overall benefits to consumers absolutely positive- but exactly how positive depends on the business models and who owns the assets - the options are endless.

In South Australia there is an imperative for the local government to subsidise clean energy projects and to improve reliability issues. At this early stage of the game it is also imperative to have the government backing to get such an ambitious project off the ground but it will require partnerships with the likes of Tesla, and other private sector investors and participants to make it happen - all of who will want a return on their investments.

Our friends at RenewEconomy have outlined what the deal will look like:

“The project will begin with a trial 1100 Housing Trust properties, which will have the solar and storage installed at no cost, funded by the state government’s Renewable Technologies Fund, where the Tesla proposal emerged.

Around 100 homes have already or are being installed and Tesla has the contract to install all 50,000 homes. Its own technology will be used to “aggregate” the systems.

An initial $2 million will be provided as a grant and a further $30 million as a loan. The government is seeking investors in the program.

The second stage will see installations at a further 24,000 Housing Trust properties, and then a similar deal offered to all South Australian households over the next four years. Private households will need to pay for the installation but should see a significant (30 per cent) saving on their power bill.

The government will seek an electricity retailer to deliver the program, and appears determined to bring in a new player to increase competition in the state market, which has suffered from its dominance by two or three major players. Tesla will be responsible for the installation.

Consumers will see a reduction in electricity prices and the benefits to the climate, air quality, and grid stability are undeniable but just how much of the revenue will flow back to host households in this project is unclear. Many of the hosts won’t pay upfront for their panels and batteries, so can’t expect a direct return.

In the future as other such projects get off the ground and more participants get in to the market we will see other VPP ownership structures that provide a windfall for consumers that offer up their systems to provide services to the grid.

It is early days and the world is watching South Australia. Here in New Zealand some small scale projects with similar objectives are underway already so we watch with much interest to understand how they pan out.


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