Examining the 'VPP-ready' requirement in the SA & VIC battery incentives

The South Australian government has introduced one of Australia’s first battery incentive programs. The Home Battery Scheme requires that systems be ‘virtual power plant ready’ (VPP-ready) to be eligible for the generous incentive on offer - nearly 50 per cent off the cost of installing a battery. The government says that the program will incentivise roughly 40,000 battery systems, and help to bring down electricity prices for everyone by reducing peak demand.

The Victorian government has followed suit with a similar program promised if they win the November election, but the details of this proposed scheme are less clear as it is not yet in place. By the sound of it, however, batteries installed under the program will need to be capable of being recruited into VPPs and/or microgrids.

Requiring systems to be VPP-ready is smart step towards expanding the role of distributed energy resources on the grid. But what will ‘VPP-ready’ look like in practice? And what can households and companies do if their preferred battery system provider doesn’t support VPPs?

 A screenshot from OpenNEM.org.au illustrating a time when solar met 40 per cent of demand in South Australia. (Image via RenewEconomy.)

A screenshot from OpenNEM.org.au illustrating a time when solar met 40 per cent of demand in South Australia. (Image via RenewEconomy.)

Harnessing the power of distributed energy

Managing distributed energy resources (DERs) like solar & storage is going to be crucial for South Australia’s energy future. Already, solar PV meets 40 per cent of daytime demand on some days in the state; in the next two to three years, AEMO anticipate that solar output will sometimes exceed minimum demand.

These types of ‘solar spills’ are great in theory, but could cause problems for the broader system if not managed appropriately - not to mention being a wasted opportunity for renewables if the excess solar must be curtailed. This is one of the things that the Victorian government is looking to address with its battery program, where the requirement looks like it may focus more on optimising solar & battery participation to shore up vulnerable parts of the grid.

“Capable of being recruited” into a VPP

Since the SA program’s requirements are clearer and the scheme sooner to be implemented, let’s look at what they have to say about VPP-readiness.

By introducing the Home Battery Scheme with a VPP-ready component, the South Australian government has taken a step towards unlocking the enormous potential of the rapidly growing number of (customer-owned) DERs on the grid. This is ambitious, forward-thinking, and commendable. For now, however, the details about the ‘VPP-ready’ component of the South Australian program are limited to the two sentences below (emphasis added):

The government clearly wants to avoid a preponderance of ‘dumb’ systems on the grid.

A set of minimum technical requirements for battery systems has been developed to ensure the batteries are safe, reliable and capable of being recruited into a virtual power plant.

While households will be able to choose whether or not their home battery system operates as part of a virtual power plant, the ability to aggregate home battery systems - either now or at a future point in time - creates opportunities to address network issues and smooth loads by balancing out peak power demands.

For companies looking to sell a system that meets this criteria - or customers looking to buy one - this isn’t a lot to go on. That being said, the government clearly wants to avoid a preponderance of ‘dumb’ systems on the grid, unable to contribute proactively or meaningfully to the electricity system.

(N.b. The SA government has promised to release more information in October; interested parties can sign up to receive a phone call on the program information page.)

The basic pieces of a VPP: distributed Nodes & central coordinator

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Breaking it down, a VPP consists of two parts: A control/coordination platform, and distributed resource ‘nodes’ which are capable of providing energy (and possibly FCAS) market services. VPPs are usually operated by energy companies (retailers & utilities) or aggregators.

From the point of view of the system, the VPP-enabling equipment at a node could be a smart battery, smart inverter, or energy management system / smart metering equipment controlling multiple devices on a site (such as a SwitchDin Droplet controller).

Each node should be capable of two-way communication with the coordination platform, which should in turn enable:

a) Visibility - at any point in time - how many of these nodes are online, what functions they can perform, and what their current capacity is; and

b) Control of the available resources to deliver services to the energy market or electricity grid in times of need. The control levers available include battery charge/discharge, demand reduction (through DRED control) and grid protection (e.g. solar curtailment and ramping).

This leaves much to the imagination, as there are a number of possible technological approaches that could accomplish this goal. As we’ve pointed out previously for the case of Victoria, there is no uniform way to build a VPP, nor an official standard or business model to build one to. So what do the options look like?

Three approaches to VPP-readiness

This lack of standardisation and the current state of the market means that there are essentially three options on the market for solar companies aiming to sell VPP-ready systems. We’ve listed them below from most to least restrictive for customer choice - noting that the third ‘option’ is not yet available in South Australia or anywhere else in Australia.

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  • VPP-enabled with battery vendor lock-in

    • Where the end customer may only access VPP programs offered by the battery vendor, usually under that vendor’s name and with an electricity retailer chosen by the vendor.

    • In this case, the battery vendor ‘owns’ the end customer, so even though Power of Choice means the customer can change electricity retailers, they may then have limited options for VPP participation depending on which retailers the battery vendor supports.

    • This is somewhat analogous to a mobile phone plan where the phone is locked to a telco.

  • VPP-enabled with electricity retail lock-in

    • Where the end customer’s VPP options are offered as part of an electricity retail deal.

    • In this case, an electricity retailer or an intermediary (partnering with a retailer to - for example - offer access to energy trading credits), look to attract the customer to a retail plan by providing a battery and VPP deal.

    • To continue the mobile phone analogy, this is analogous to a BYO mobile contract, where you bring the phone but need to lock into a telco.

  • VPP-ready by public standard or BYO-adapter

    • Where the VPP-ready equipment has been designated to meet uniform, publicly available (and possibly mandatory) specifications set by a utility or government or government-backed organisation (such as Standards Australia, AEMC or AEMO).

    • This allows a household’s system to potentially participate in any VPP program on the market. That being said, standards may prove a tricky step to achieve this, as too much mandating or the mandating of the wrong bits of the puzzle can stifle innovation.

    • At present, no such VPP standard exists in Australia, but if one does come into place it may include something like California’s Rule 21.

    • This approach to VPPs is analogous to using the apps Whatsapp or Skype over your own phone on any telco carrier.

SwitchDin’s Droplet  controller turns most solar and battery systems into VPP-ready devices, leaving the way open for end-consumers to take up their favourite retailer offering. This approach can enable both the second and third options listed above, providing an easy migration path.

Avoiding An uneven playing field for would-be VPP participants

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VPPs are still a new idea in Australia, and the exact benefits for end users remain fuzzy. What is certain is that the number of VPP program options currently available will grow. Meanwhile, many of the equipment vendors and electricity retailers already offering VPP-readiness to their customers may be restrictive in one way or another.

This might not be a bad thing if it drives a good deal for households. However, because VPPs are such a new (and little understood) concept, there is the risk that SA households who opt for a VPP-ready system to gain instant access to a program may find themselves with limited options in the future - even as their neighbours come to enjoy an expanding range of VPP programs and electricity retail choices. This highlights the need to educate consumers about how their choice of VPP-ready equipment may affect their VPP program options further down the line.

It’s still early days, so we don’t know if the SA (or VIC) governments will address this concern as a consumer protection issue (which is unlikely and probably unnecessary), or if they’ll let the market decide. While all of the promised VPP-ready systems may eventually be brought into line with a mandatory standard or due to market forces, for now it looks like each will need to make their own rules of participation.

SwitchDin is working to keep options open

SwitchDin recognises that there is a world of opportunity for VPP programs in the future, and have built system to support consumer choice. Our technology has been designed with flexibility and interoperability at is core, acting as a babel fish across a range of communications protocols, making it possible to create a VPP from heterogeneous components.

With a vendor-neutral VPP cloud platform (Stormcloud) enabled by a bolt-on or integratable ‘virtual inverter’ / EMS (Droplet), SwitchDin provides a solution that ticks the VPP-ready box for the new SA battery incentive while preserving optionality for end customers.

If you’re looking for technology that makes your offerings and products VPP-ready, reach out to us today to learn more.

Andrew Mears