A virtual power plant, or virtual power station, connects renewable energy generators from a variety of locations with energy storage and load control systems in a web-based network to create a single, reliable energy supply. Simply put it is a PV system (or other source of generation), with a battery controlled by software to determine when it generates, exports, and stores electricity.
Virtual power plants can be used to aggregate the capacity of Distributed Energy Resources (DERs) including different types of dispatchable and non-dispatchable generation for the purpose of energy trading in the wholesale market. If you have a bunch of smaller systems, say small commercial or rooftop solar, you can bundle the kWs generated through those systems to create a portfolio of generation that is worth trading on the wholesale market. VPPs can also help provide ancillary services for grid operators on behalf of DER owners who are not able to participate in the electricity market alone.
Power sources that could be aggregated include photovoltaics, back-up gensets, batteries, small-scale wind turbines, small hydro, flexible/controllable loads and biomass.
Why are they so interesting all of a sudden? Because end use consumers can start to benefit by receiving a financial incentive from electricity retailers or aggregators to reduce demand during high price periods and take advantage of new ‘behind the meter’ products. In other words, a mechanism for demand response has come to town.
DEMAND RESPONSE or DEMAND SIDE MANAGEMENT
Demand response involves paying consumers to reduce their energy consumption on request during peak periods or emergencies, freeing up electricity supply. It is a different way of looking at the supply/demand curve. Instead of increase supply to meet rising demand, customers are incentivised to reduce their demand. Typically this involves switching off or reducing consumption. Both commercial and industrial as well as residential customers can participate:
- C&I customers: cold storage, pump stations, smelters, mushroom farms, industrial crushing
- Residential customers: air-conditioners, pool pumps, home storage systems
- Delaying the use of equipment until the peak period has passed
- Switching to an on-site generator during high demand periods
HOW DOES THE RECENT ARENA/AEMO FUNDING AFFECT THE MARKET?
In May, the Australian Renewable Energy Agency (ARENA) and the Australian Energy Market Operator (AEMO) announced plans to pilot a demand response initiative this summer to manage electricity supply during extreme peaks. ARENA expects to commit up to $22.5 million over three years to fund the pilot, based on an assessment of the current market.
The three-year program is to be trialed in South Australia and Victoria to free up temporary supply during extreme weather and unplanned outages. Initially, this pilot program will aim to secure 100 megawatts of demand response capacity by next summer, with the potential for demand response to be scaled up in subsequent years.
This means that the industry is investing heavily in understanding the right mechanism to allow consumers to be compensated for reducing their demand. Soon we will start seeing investment signals for both commercial and industrial as well as residential customers to start curbing their demand in response to requests from the market and/or their retailer or distribution company. And installed solar and a battery on your house as part of a bigger portfolio of generation, might just start making economic sense.