Demonstrating how storage system can create a virtual power plant

AGL, one of Australia’s leading integrated energy companies, has a project in Adelaide to roll out 1,000 battery systems to homes and businesses that will operate like a 5MW plant, and optimise energy produced from solar panels. Michael Slezak writes about the latest developments in The Guardian. This project will be important for all of us to follow.

 

Adelaide charges ahead with world’s largest ‘virtual power plant’

Adelaide will be home to the world’s largest “virtual power plant” – AGL is rolling out 1,000 battery systems to homes and businesses, with backing from the Australian Renewable Energy Agency (Arena).

AGL and Arena say the project will improve network security and dampen a volatile wholesale electricity price in South Australia. However, an energy expert says that at the current size, the system will have a minimal impact on network security or wholesale prices, but might pose a challenge to the revenues of companies that own the poles and wires.

Offered to homes and businesses with solar systems, the $20m AGL project, backed with $5m from Arena, will operate like a 5MW peaking power plant, providing power to homes and businesses during periods at optimal times.

The chief executive of AGL, Andy Vesey, told Guardian Australia: “The beauty of the project is it’s being done over 1,000 batteries, and that’s how we deliver an aggregate benefit to the grid itself.

“But for the consumer, it will have the value of the battery. And it’s being priced at a way that a good investment decision could be made. We’re viewing that the average savings for someone who has rooftop solar right now would be $500 a year. It’s really a way of optimising the energy produced out of their solar panel.”

The system will cost $3,500, and AGL estimates it will take about seven years for solar customers to recover the costs.

Arena’s chief executive, Ivor Frischknecht, said the project would boost grid stability, reduce power price volatility and support the expansion of renewable energy.

Wholesale electricity prices have been rising around Australia, and particularly in Adelaide, where there have also been huge spikes in the volatile electricity spot market.

Despite some commentators linking the price increases primarily to the high penetration of wind energy in South Australia, the rise has mostly been linked with the rise of the price of gas, which is used to generate most of South Australia’s “dispatchable”, or on-demand, electricity. It was exacerbated in recent weeks by maintenance on an interconnector with Victoria.

Storing electricity produced during times of high supply, and dispatching it during times of high demand, should be able to reduce the reliance on gas – the prices of which have been rising as Australia has expanded its gas exports – as well as the interconnector with Victoria.

“The result is like adding a 5MW power station that can quickly deliver enough energy to power 1,000 South Australian homes where and when it’s needed most,” Frischknecht said. “This approach can ease local network constraints, displace gas power and complement the Victorian interconnector, especially during times of peak demand.”

Dylan McConnell, from the Melbourne Energy Institute at the University of Melbourne, said that at 5MW, the project would not have a significant impact on the the state’s reliance on gas or on the interconnector.

As a demonstration of something that could be bigger, McConnell said one of the biggest impacts of the business model could be on how the networks recover the costs of the poles and wires.

About half the cost of a home energy bill is linked to the network’s cost recovery of its poles and wires. McConnell said that meant a lot of the money being saved by consumers was actually done by avoiding paying the network costs. And that’s what AGL is relying on for its business model.

But this “virtual power plant” isn’t moving people off the grid. Instead, it’s relying on the grid, while avoiding the charges the distributors use to pay for the grid.

McConnell said that if the network operators responded to this by changing the way they collected that money – by charging a fixed connection fee for example – that would hurt AGL’s business model.

“The business case for doing this sort of thing that AGL is doing is really dependent on what the tariff structure is. If you tweak your tariff structure so that you’re paying a fixed charge to remain connected to the grid, the [AGL] business case evaporates.”

Vesey said that sort of system could mean the network companies would not make new investments. “So there’s a value in avoiding investments that don’t need to be made,” he said.

Pressed on whether it could affect tariff structures, he said: “Yes at the end of the day, is there a need to think about tariffs? Sure there always is – you want tariffs to incentivise the right investments to provide the maximum value to the end user. And I think all these things need to be revisited – technology does that.”

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