The role of virtual power plants in Australia’s future energy system

/The role of virtual power plants in Australia’s future energy system
  • Day:

    02 April
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    Smart Energy Solutions

The role of virtual power plants in Australia’s future energy system

 

By 2015, the global market for DER had already reached $130 billion. Technology has advanced rapidly in areas such as photovoltaic (PV) solar, combined heat and power systems, and energy efficiency products such as smart-home technology and heat pumps. Advances in battery storage, energy management systems (EMS), and other integrated solutions is fuelling further growth.

 

A key question is: how distributed will our future energy system be? And what role for VPPs?

 

If we look at Australia’s energy landscape today, we see some fascinating differences among different types of renewables sources. We also see some fascinating differences when comparing ourselves to other countries.

 

For example, we have the world’s highest penetration of rooftop solar – already 21% today (3.5M rooftop systems) and forecast to hit 40% by 2030. The U.S., in contract, has less than 1% rooftop solar and Belgium, which has the 2nd highest penetration stands at just 7.5%. This has been driven by very generous state subsidies over many years, such as feed in tariff rates providing up to 60c per kilowatt hour which is many multiples of the wholesale price. These incentives will be phased out in the coming years, but Australia has enormous solar potential compared with the rest of the world: 251,000 TWh which is on par with the USA, but more than twice the potential of China and four times the potential of Africa.

 

This ties nicely to storage technology, given that PV generation doesn’t match the demand curve, and indeed exacerbates the duck curve. Both small scale and large scale storage are expected to have high growth in the next few years. For small scale storage, state governments are providing generous incentives. South Australia has a $6000 home battery subsidy and Victoria provides PV+ battery systems at half price as part of the solar homes program. The Federal government is funding research into storage and considering national schemes. The bigger game however, is large scale storage, which includes pumped hydro and SA’s Hornsdale battery which could add up to 4GWh of capacity from over 50 different projects.

 

The other game changer for storage is electric vehicles, especially if they store surplus grid energy and provide ‘vehicle to grid’ functionality. However, this looks unlikely to become a reality in Australia for a long time coming as we currently stand with one of the lowest EV adoption rates in the world: a mere 1%. You could say that this is because we have long travel distances in our country and range anxiety is a real issue. Or because we offer zero incentives for EV ownership, unlike most other OECD countries. But investment in public charging infrastructure is another main driver of EV uptake globally.

 

While some of our European counterparts are well on their way to mass-scale EV, we are far from it. In Norway, more than half of new car sales are EVs, and buyers are rewarded with tax exemptions, free parking and bus lane access. The Netherlands is similar with over 30% of new car sales being EVs. Both countries have 1500+ public charge points per million of population which is the highest in the world, compared to a non-existent public charge infrastructure in Australia, apart from the Queensland which has charging stations from Coolangatta to Cairns…and Western Australia which is planning a network of autonomous shared electric vehicles. If battery prices and EV car prices fall substantially and/or petrol prices increase markedly, this could change. But current projections vary widely and put full adoption at over 20yrs from now.

 

So given all of this, how distributed will the system be? Will people go off-grid en masse any time soon. Probably not.

 

Despite high solar PV penetration most consumers are unlikely to go completely off the grid because reliability of supply is often their highest priority. Achieving 99% reliability (no power for 4 days/year) using solar PV + battery would require an upfront investment of $98k by an average household and in 10yrs it will still be over $50k. This is particularly true in urban areas, but of course the economics at the fringe of the grid, in remote areas and islands will be very different.

 

Virtual power plants can play a meaningful role, enabling citizens to access renewable energy resources with reliability and affordability. A VPP is a cloud-based distributed power plant that aggregates the capacities of heterogeneous DER units for the purposes of enhancing power generation, as well as trading or selling power on the electricity market. The beauty of VPPs is that they can provide highly efficient generation, due to larger scale generation and storage facilities and the ability to trade among numerous market participants.

 

Making them work is in the interest of everyone – individual citizens wanting cheaper, reliable and green energy, generators who want to reduce their peaking capacity, retailers who want to manage their risk profile, and also grids who want to keep more people connected and using their infrastructure.

 

Electricity networks could rethink pricing by charging a higher proportion towards the 99.99% reliability (no power for 1 hour/year) that they offer vs variable usage driven pricing. This is turn would encourage citizens to remain grid-connected and stimulate the government to invest more heavily in large scale affordable renewable energy, compared to less efficient mini-power plants in individual homes which are still connected to the grid for reliability. As a proof point, approximately 40% of market participants in Germany (one of the most developed VPP markets) are VPP aggregators or large consumers.

 

In summary, utilities and smaller players like equipment manufacturers and local installers will need to innovate in order to benefit from this rapid growth of DER. In key markets, such as the US, EU, and many Asian countries, participants are already staking out their segment of the markets and boldly scaling new models. We have a big opportunity here given our incredible PV and wind generation potential and the growth of storage. It won’t be straight-forward orchestrating the various elements into meaningful markets with aggregated supply and demand, but it can be done. We need more coordination in the wholesale market, and adjustments to the National Electricity Rules.