Delta-EE: is Australia becoming the global VPP leader?

By Neil Atterbury, Analyst, Delta-EE
Given its one of the worlds top exporters of coal, Australia might not be top of mind when it comes tonew energy. One area where it is ahead of the cur...

Given it’s one of the world’s top exporters of coal, Australia might not be top of mind when it comes to new energy. 

One area where it is ahead of the curve, though, is virtual power plants (VPPs) using residential energy storage. Indeed, ignoring any near-term market disruption due to COVID-19, we see the potential for a doubling of residential storage assets taking part in a VPP over the coming year or so. This will take the installed base active in a VPP to 10,000 systems. Alongside Germany, this makes Australia one of the most active global markets we have seen. 

At Delta-EE, we decided to look at what has been fuelling this growth down under. Here, I set out some of the key reasons we identified: 

  • Australia is rapidly becoming the leading market for residential energy storage. Alongside feverish adoption of photovoltaics (approaching 200k installs per year), the installed base of residential storage in 2019 was 85k, up from only 500 systems in 2015 (CAGR: 260%). Delta-EE estimates the total installed capacity of residential storage to be 336MW in 2019. This places it above Germany in terms of installs per household for residential storage, an impressive benchmark for any country. It’s not surprising then that VPPs are becoming a hot topic in Australia. 

  • There is value to be had in Australia’s wholesale markets. VPPs in Australia have begun by predominantly monetising energy wholesale market price signals. One reason for this is that the ancillary services markets are mostly closed to these types of VPP and/or are expected to erode in value over time as they become saturated. Another, more exciting reason, is that Australia’s wholesale markets are very volatile, so offer a lot of value. To give you an idea, prices reached as high as $3,400 AUD/MWh (€2000) in 2019 due to extremely hot summer temperatures, and as low as -$1000 AUD/MWh (-€590) in spring. This volatility is expected to continue and is the key value opportunity for VPPs in Australia.  

  • VPPs can cut payback periods for residential solar storage. Consumers receive ~$200-350 AUD / year (€120-200) from VPP propositions in Australia today, depending on the size of their system and location. This is considerably less value than is achieved from optimising the battery for self-consumption but, when the two values are paired together, can reduce payback periods for customers by 4-5 years.   

  • Australian consumers have an increasing appetite to secure more predictable energy costs, following extreme price hikes in 2017. VPP operators are aware they will need to make the financial gains from VPPs more attractive if they are to reach the mass market, but this is not the only driver for Australian consumers. Energy independence and reliability are compelling reasons to purchase energy storage and join VPPs. Customers’ energy bills have increased significantly in recent years and, given the size of Australia and its low population density, the reliability of the electricity grid is a real issue. The ability to control energy costs and reduce dependence on grid infrastructure is therefore important drivers of uptake in storage and VPPs.  

We have already seen some European and US players, like Sonnen, Tesla and Social Energy, launch VPP propositions in Australia. It is clear why it proved an attractive market for them. Looking forward, we expect the VPP market in Australia to continue rapid growth and then who knows, maybe we will see Australia also exporting VPP innovations to the world, alongside coal.  

This article was contributed by Neil Atterbury, Analyst, Delta-EE.


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