Australia’s AEMC proposes increased virtual power plant market penetration

The Australian Energy Market Commission (AEMC) has proposed in a draft paper that virtual power plants (VPPs) compete directly with large-scale generators in the energy market.

The AEMC’s draft determination extends beyond VPP’s to include community batteries, flexible large loads and other price-responsive small resources such as back-up generators, marking a shift in Australia’s energy landscape.

Currently in Australia, there is no mechanism for the market to predict how such resources will respond 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.

Commenting in a release was AEMC Chair Anna Collyer, who said the work represents a watershed for the Australian energy market:

“By integrating VPP’s and similar resources, we’re not just enhancing market efficiency; we’re empowering consumers and paving the way for a more sustainable energy future.

“Fully integrating these resources will allow energy, security, and reliability services to be provided more efficiently. Over time, this integration will reduce the need for large scale generation and storage infrastructure, ultimately decreasing costs and emissions for all consumers.”

Virtual power plants market penetration

According the AEMC, recent modelling indicates that VPP market participation could result in cost savings of AU$834 million ($544.5 million) between 2027 and 2050.

The AEMC is therefore calling on governments to recognise these resources officially.

Once they participate in dispatch, says the Commission, they will be as technically capable as any other generator and should be eligible for schemes such as the Capacity Investment Scheme.

To encourage broad participation, the draft determination includes a mechanism to provide payments to early entrants.

However, recognising that a mechanism in the rules may not be the ideal fit, the AEMC is also calling on the Australian Renewable Energy Agency (ARENA) to consider a trial grant programme for early entrants.

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The draft determination also addresses the current gap in the market knowledge regarding the impact these resources are having on operational forecasting.

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

According to the AEMC, the potential rule change is a key component of a broader reform package aimed at integrating consumer energy resources, representing the primary focus in the AEMC’s work programme for integrating these resources into the wholesale electricity market.

Said Collyer: “By making price-responsive behaviour visible, we’re allowing the market to operate more efficiently. It’s like giving the system a pair of glasses – suddenly, it can see and respond to consumer actions that were previously invisible.

“This improved visibility will lead to more efficient generation use, lower system costs and potentially reduced energy prices for all consumers. It’s a win-win that doesn’t require changing behaviour, just smarter market operation.”

The AEMC has invited stakeholders to provide feedback on this draft determination.

The consultation period will run until 12 September 2024, with a final determination expected by the end of the year.