Virtual power plants: The Finkel, Zibelman energy revolution

June 28, 2017 1:28 pm Published by Leave your thoughts

Article by Phil Keogan, SVP Asia Pacific, Sunverge Energy

For far too long, the Australian energy industry has been consumed by finger pointing and fault finding.

Network operators accused of over investing in poles and wires to drive up the value of their asset base and revenues. Rule makers criticised for inflexible regulatory investment testing, preventing network operators from seeking innovative and customer focused alternatives such as localised micro-grids. Politicians blamed for not doing enough to fix the energy reliability ‘crisis’ and ease the cost of living pressure, which has seen electricity prices double in the last decade.

Fortunately, there’s a burst of light in the energy market signalling things are about to change. Three industry-transforming developments have converged, creating the right conditions to bring about the biggest energy revolution in Australia since the 1900s: The Finkel Report, the arrival of Audrey Zibelman and the rise of virtual power plants.

The Finkel Report

The release last week of the highly-anticipated Finkel Report into the future of the National Electricity Market has gained the overwhelming support of business, hopeful of a cleaner, smarter and more affordable energy grid.

The review by Chief Scientist Alan Finkel recommends putting in place a clean energy target which will encourage the growth of virtual power plants – distributed energy aggregated from household solar, wind and large-scale solar battery projects.

With 87 per cent of Australia’s electricity generation coming from fossil fuels, Finkel says Australia needs to do more and fast to reduce emissions in a way that incentivises both retailers and consumers to buy cleaner renewable energy – much cheaper than building new coal plants.

For the first time, the industry will develop a real plan for helping us get there.

By producing cleaner energy under the Finkel plan, generators receive credit by way of a Low Emissions Target (LET) which they can then sell to retailers. Meanwhile, consumers with solar energy storage systems are rewarded for the power they generate in the way of improved energy efficiency and lower electricity bills – not just for those with solar energy storage, but for all consumers – reducing the need for utilities to grow their transmission and distribution networks.

By 2030, Finkel predicts that Australia can source 42 per cent of its energy from renewables. For that to happen, according to Finkel, the time to invest in virtual power plants is now.

Audrey Zibelman

Audrey Zibelman, the new CEO of the Australian Energy Market Operator (AEMO), is in full agreement with Finkel.

Since taking the helm in March, Zibelman has brought a new sense of optimism to the industry with her radically different vision for managing Australia’s energy future, driven by consumer demand. Zibelman also proposes a grid based on virtual power plants.

More importantly, Zibelman has already proven her plan will work.

In her last role as chair of the New York State Public Service Commission, Zibelman led the creation of New York’s reformed energy grid in the wake of Hurricane Sandy. It relies on renewables, batteries, and other smart grid technology to provide energy security for around 20 million citizens (a comparable population size to Australia’s 24 million.) It is the best case study for Australia to learn from.

The new grid system, which puts New York on track to achieve a 50 per cent renewable target by 2030, is considered the most ground-breaking grid transformation in the world. According to Zibelman, with the rise of households proactively contributing to our energy security, virtual power plants could be just as successful in Australia, if not more.

New tech

We know that changes to regulation rules are coming. But enabling technology is coming faster.

According to Finkel and Zibelman, the key to Australia’s energy future is embracing new technology to address the changing needs of consumers, meet demand and ensure grid reliability.

The Finkel report will not only cause a boom in home battery uptake, but also a boom in smart technology that enables virtual power plants to work. This technology automatically aggregates a small percentage of reserved power from household solar batteries when the grid is under pressure – improving peak load management and grid reliability.

Anyone putting in a battery that can’t fully integrate into a virtual power plant will need this technology in the very near future – and an installer to connect them – or risk losing out on the benefits of being connected.

New jobs

As a nation, Australia has the opportunity to become a global leader in virtual power plant technology.

And that means jobs.

Already, Australia is home to the largest commercial-scale residential virtual power plant project in the world. Sunverge is working hard with its partners on this project, which is expected to be running by the end of the year. There were also seven new large-scale solar farms built across the country last year, with more under construction.

Currently, Sunverge – Australia’s largest energy management platform provider – and its partners has more than 30 people on the ground working on large-scale virtual power plant projects. By 2030, we believe the virtual power plant job market could grow 100 fold.

The potential is also there for Australia to lure large-scale, advanced assembly manufacturing to our shores and become a global hub for virtual power plant innovation. That means a huge boost to our employment market, and economy.

Rewarding consumers

The opportunity we have in front of us is in large part because of the actions of millions of Australians to choose solar.

In March, the Australian solar industry recorded the highest amount of household solar installations in five years. According to new data from the Clean Energy Council, solar generation rose by 29 per cent last year alone. Collectively, household solar represents Australia’s largest power plant, and growing.

As recommended by Finkel and Zibelman, rewarding consumers for making their stored energy available at peak times would make the grid more resilient, efficient and economic, all at the same time.

Already, Zibelman is helping to incentivise solar energy storage in Australia. In May, AEMO together with the Australian Renewable Energy Agency (ARENA) announced a $22.5 million, three-year pilot demand response initiative to pay businesses and households in South Australia and Victoria to cut their energy usage this summer. It’s the first program of its type in Australia, allowing the market to manage peak demand in real-time and free up temporary supply.

Right-sizing the network

From a utility’s point of view, virtual power plants are a way to right-size their network without having to write down the value of their assets to fix Australia’s power bill problem.

Using virtual power plant technology, utilities can increase renewable penetration, avoid new capital investment and shrink the size of their network over time. There are other economic benefits too – such as capacity trading opportunities and the ability to offer new, value-added services – all contributing to the long-term viability of utilities. What’s more, the technology isn’t difficult or expensive to integrate – it works automatically via the cloud.

Up until recently, the potential of virtual power plant technology has been little known or understood in Australia.

Now, thanks to the Finkel report and Zibelman’s leadership, there is not only increased impetus on all sides to create a business model that works, but also real hope we can actually achieve it. What’s more, we have the capability to go further – and not only solve our energy problems, but create the world’s first truly modern national grid.