How Tesla’s VPP sale signals a shift in Australia’s power market

In this week’s Power Playbook, Yusuf Latief looks into reports of Tesla’s VPP sale in South Australia, a month after the country’s market commission announced they are looking to make the market more VPP-focused.

Elon Musk’s Tesla is looking to sell a virtual power plant (VPP) in South Australia.

While the sale of the VPP may signal a pivot in Tesla’s strategic focus, it signals more about the changing market in Australia.

At the time of its launch in 2018, the VPP was hailed as a landmark project – one of the first in the country. The VPP was developed with support of the Government of South Australia and energy retailer, Energy Locals, aggregating power through solar and Powerwall home battery systems.

Since the launch, the country has come a long way from that initial project. According to Renew Economy, the $715 billion Nasdaq-listed Tesla’s for-sale sign now signals huge potential for growth in VPPs as the country’s grid surges towards high levels of renewables.

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VPPs: A positive force if managed correctly

Indeed, Australia’s power market is shifting.

In Western Australia alone, according to a July pilot of VPP technology by the state government, redistributing excess power produced by residential solar panels, appliances and home batteries has the potential to create more than AUD920 million ($625.7 million) in value in the coming decade.

The project, known as Project Symphony, highlighted the opportunity VPPs could provide and the need for policy and regulatory changes to help with their integration.

And from a regulatory perspective, it seems moves may be made to tap this potential.

A month later, in early August, I covered that AEMC, the country’s energy market commission, proposed that virtual power plants actually compete directly with large-scale generators in the energy market.

At the time, the AEMC’s draft determination extended beyond VPP’s to include community batteries, flexible large loads and other price-responsive small resources. For such resources in Australia, there is currently no mechanism for the market to predict their response to daily price fluctuations.

This gap in market knowledge creates significant operational challenges for the Australian Energy Market Operator (AEMO), states the AEMC, and could lead to costly system operations.

Thus, they are hoping to integrate these resources into the market more closely, which they say could result in cost savings of AU$834 million ($544.5 million) between 2027 and 2050.

Under the AEMC’s proposal, AEMO and the Australian Energy Regulator would have new monitoring and reporting functions to provide additional transparency.

When announced, the AEMC invited sector stakeholders to provide feedback under a consultation that ran until 12 September, a day before reports surfaced of Tesla’s sale intent.

A 10-year investment outlook

A final determination on the integration of VPPs is expected by the end of the year. Until then, Tesla’s announcement serves as a sign of what’s to come.

However, a month following the AEMC’s draft determination, the commission proceeded to publish its 2024 Electricity Statement of Opportunities (ESOO) report, providing a 10-year outlook of investment requirements to maintain reliability for Australia’s National Electricity Market.

The report highlights that to maintain reliability of supply, it is imperative that expected investments in new generation, storage and transmission are delivered on time.

This includes federal and state government schemes, supported generation projects, actionable transmission developments, the coordination of consumer energy resources and additional demand flexibility, which of course can be provided by the likes of VPPs.

Commenting in a release was AEMO CEO, Daniel Westerman: “Compared to last year’s report, the reliability outlook has improved, assisted by the progress of 5.7 gigawatts of grid-scale generation and storage and 365km of new transmission developments.

“It is critical that expected investments in generation, storage and transmission are delivered on time and in full.

“If delays occur to projects already underway or further investment does not materialise, then the outlook for reliability will deteriorate.”

AEMO said that the delivery of these expected investments is critical.

Their modelling indicates reliability gaps at times over the next 10 years if these projects are delayed. These reliability gaps are now projected to be smaller than those forecast previously.

The next few months it seems will be critical for the country in determining how their market shapes up.

And it’s not only down under where market changes are taking place. In Europe and the US, grid reliability is a big focus as renewables come online and cause disruption.

We will certainly keep an eye on these market movements and of course on Tesla‘s movements. Stay tuned with the Power Playbook for these and more latest updates.

Cheers,
Yusuf Latief
Content Producer
Smart Energy International