Australia sees value in VPPs

A 5MW virtual power plant, Australia’s largest demonstration to date, could solve the country’s grid woes.
Published: Wed 21 Sep 2016

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Increasingly, utilities are turning to virtual power plants (VPPs) to collectively reduce customers’ energy demand at peak hours and provide renewable energy supplies in targeted areas, enabling utilities to offset consumption needs from conventional sources and avoid grid disruptions.  

Power providers in the US and Europe are already experimenting furiously with VPPs to help manage and harness the value of thousands of distributed energy systems – the various energy storage, efficiency, and renewable energy installations across the grid. [Virtual Power Plants-The UK’s Answer To Its Energy Woes] VPPs have been under development in Germany, the world’s leading residential storage market, for many years now by companies such as Caterva, Fenecon, Senec-IES and Next Kraftwerke. Hamburg-based LichtBlick pioneered the concept with decentralized combined-heat-and-power units and by June 2015 was reported to have assimilated 1,000 of them, rated between 20kW and 1.5MW in a single VPP.

Applications are growing in Germany with the introduction of new entrants such as Sonnen, which last year launched a virtual power plant for its 8,000 German customers.

VPPs are also proving increasingly of interest in other storage markets. In the Nordic countries, Finnish utility Fortum is piloting the concept with storage assets including a 2MW, 1MWh storage project using lithium-ion batteries from Saft.

Australia VPPs –an obvious choice

Given the growing interest in VPPs worldwide, it is surprising that Australia, with its impressive residential solar and energy storage market, is only just launching its market.

With its high levels of residential solar penetration (around one in five households have a PV array), government incentives, high electricity prices and low solar system prices, Australia is emerging as a leading market in terms of solar+storage deployment. Based on their resources and needs, it goes without saying that VPPs are an obvious choice for the country. [Australian Households To Lead the Energy Revolution].

Added to the aforementioned is the financial backing from the Australian Renewable Energy Agency (ARENA) which is creating more awareness around VPPs, thereby boosting investor interest. Recently, ARENA ploughed   AUD$400,000 (US$293,000) into Queensland’s Ergon project which will see 33 SunPower solar arrays, each with a capacity of 4.9kW, rolled out to select districts. The systems will be deployed with an intelligent energy management system and will be coupled with 12kWh Sunverge battery systems. The pilot programme will assess the impact the systems, forming a ‘virtual power plant’, have on grids in terms of managing solar feed in, supplying demand management services and reducing peak loads. The project will trial a VPP model by installing a number of centrally monitored and controlled solar/storage systems in Cannonvale, Toowoomba and Townsville, Queensland.

ARENA has also just invested in yet another VPP project, Australia’s largest demonstration to date in fact. AGL Energy’s US$20 million 5MW/7MWh virtual power plant in South Australia which will link solar panels and batteries across 1,000 homes and businesses received US$5 million. The aim of the project is to solve grid challenges such as fluctuations in electricity tariffs, reduce local network constraints and displace gas power during times of peak demand.

It is believed that AGL's project could help pave the way for regulatory changes to enable more of the projects, and could launch a trend of VPPs entering energy markets as more renewables are introduced to the grid.

VPP global growth-bigger than we think?

VPPs is an emerging field of clean energy that is projected to more than quintuple in size in the US within a decade; rising from 4,800MW in capacity in 2014, to nearly 28,000MW by 2023, according to Navigant Research.

The software component of virtual power plants alone– known as “distributed energy resource management systems” – will soon double in market value, from roughly US$50 million (332 million yuan) in 2014 to US$110 million in 2018.

Add renewable energy technology, batteries, and other components to the mix, and the VPP market could grow from US$1.5 billion in annual revenue in 2016 to a US$5.3 billion market by 2023, with the US taking US$3.7 billion of that year’s total and Europe snagging US$1.3 billion, Navigant projected in 2014. [Virtual Power Plant Revenue is Growing]

Peter Asmus, principal research analyst for Navigant in San Francisco, said the market may actually be worth much more, given the recent growth in residential and commercial battery systems from companies such as LG Chem and Panasonic. 

It is hoped that the knowledge gained from Ergon’s and AGL’s VPP projects will show a path to commercialization and provide learnings that regulators and other energy companies can learn from. Australia can certainly take lessons learnt from projects carried out in the US and Europe so as to avoid reinventing the wheel.  

Listen to our webinar, Renewable Integration - Market design new concepts and paradigms, for a deeper insight into VPP design and the wider path to decarbonisation. This webinar is part of our 'Renewable Integration' In Focus track on engerati. Follow this link for more insights!

Further reading

Navigant Research-Energy Cloud 2.0: Orchestrating Power Networks via Virtual Power Plants


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