Applications of Home Energy Storage in Virtual Power Plants (VPP)

Published on: May 28, 2025
Authors: Luo Yinglun, Huang Yaqi, Lu Zhaolin (Industrial Technology Research Institute)

Abstract: In response to climate change and geopolitical uncertainties, energy independence and grid resilience are becoming increasingly important. As electricity markets open and scheduling regulations improve, Distributed Energy Resources (DERs) are gaining attention for their potential to enhance the resilience of power infrastructure.

1. Introduction

Energy independence and grid resilience are critical topics due to climate change and geopolitical uncertainties. With the opening of electricity markets and the refinement of scheduling regulations, Distributed Energy Resources (DERs) are being recognized for their ability to strengthen power infrastructure resilience. However, traditional decentralized resources often lack the scale to participate in electricity market transactions or assist in grid services, leading to increased interest in the concept of Virtual Power Plants (VPPs). A VPP integrates diverse decentralized energy resources using advanced information and communication technologies, allowing for demand forecasting, aggregated scheduling, and optimization through a unified platform. This enables resources to work collaboratively and participate in electricity markets. Additionally, Aggregators play a vital role in VPPs by integrating and managing decentralized energy resources to participate as a unified entity in the electricity market and provide grid services.

The core technologies of a VPP include a management software platform, communication technologies and equipment, and controllers. The management software platform is crucial for VPP operations, requiring forecasting capabilities to estimate generation and load curves as well as market prices, while also providing real-time status monitoring of decentralized energy resources. Furthermore, through big data processing and multi-objective optimization techniques, the platform can optimize resource scheduling and investment decisions, including calculating Customer Baselines (CBL) and managing revenue settlements. In terms of communication technologies and equipment, standardized communication protocols must be established, such as those between VPPs and Transmission System Operators (TSOs) or other decentralized resources. High-stability network infrastructure (e.g., 4G/5G, Wi-Fi) is also needed to enhance information and communication security. Controllers serve as a key interface between power systems, facilitating interoperability and coordination among different systems using gateways or translators.

As technology advances and costs decrease, the application of energy storage systems in residential settings has been on the rise, leading to increased interest in home energy storage systems within VPPs. Traditionally, these systems were primarily used for backup power during grid outages, resulting in most of the time spent idle. However, if these energy storage devices can fully realize their value by providing grid services, they hold significant potential. By utilizing a management platform for centralized control and scheduling of home energy storage, optimal use of electricity resources can be achieved. For example, during peak electricity usage times, a VPP can mobilize home energy storage systems to release power, alleviating grid pressure; charging can be scheduled during off-peak hours or when solar generation is high. This scheduling not only enhances grid stability but also provides economic benefits to household users. The following sections will analyze case studies of home energy storage applications in VPPs in South Australia and California, USA.

2. Case Studies of Home Energy Storage in VPPs

(1) South Australia

Approximately one-third of homes in Australia have installed solar panels, and one in seven homes has a home energy storage system, with a cumulative installation of 309 MW by 2023. The Australian government views home energy storage as a vital component of virtual power plants and actively promotes VPP demonstration projects, the most significant of which are Tesla’s two VPP projects in South Australia. One project is a demonstration in collaboration with the South Australian government, initially funded by a $2 million grant from the state and a $20 million loan from the Renewable Technology Fund. Tesla plays a leading role in this project, encompassing the design and development of the South Australia VPP, and is responsible for providing and installing the Tesla Powerwall series products at a scale of 50,000 units. The program is limited to tenants of Housing South Australia, akin to social housing in Taiwan. Tesla provides Powerwall units for free, retaining ownership and control; at least 10% of the battery’s charge is reserved for household use, and the residential electricity price is guaranteed to be 25% lower than the standard rate.

Another VPP option is the Tesla Energy Plan, which is available to private residences. Participants must own or purchase a Powerwall from Tesla, with corresponding PV systems limited to less than 15 kW. New Powerwall users can receive a $1,000 credit toward their electricity bill; existing users receive a one-time $100 credit; additionally, participation can earn points for grid support. While the ownership of the Powerwall remains with the users, control during the contract period belongs to Tesla, which is limited to a maximum of 50 discharge cycles per year (with a total discharge limit of 50×13.5 kWh), ensuring at least 20% of charge remains for household use.

The business model of the South Australia VPP is illustrated below:

Source: Industrial Technology Research Institute, ITIS Research Team (May 2025)

Tesla collaborates primarily with the electricity retailer Energy Locals and the distributor SA Power Network. The business model is described as follows:

• VPP Participants: Users purchase and install a Powerwall from Tesla, potentially receiving discounts or credits toward their electricity bills. The costs are borne by Tesla or Energy Locals, depending on mutual agreements. Users earn credits for grid service rewards, issued by Energy Locals, with the specifics of Tesla’s cost-sharing subject to agreement.
• VPP Aggregator: Initial funding comes from government grants and revenues from the sale of storage devices. Long-term revenue plans involve supplying excess power to the grid through the VPP, providing services to alleviate distribution congestion, or participating in electricity market transactions. Revenue is shared between Tesla and Energy Locals based on agreements.

(2) California, USA

California has been facing increasing challenges to its grid stability due to extreme weather, with summer wildfires putting significant pressure on the electricity network. To address this, the state has been actively developing VPPs to enhance grid reliability. For instance, the California Public Utilities Commission (CPUC) launched the Emergency Load Reduction Program (ELRP) in 2021. From May to October, between 4 PM and 9 PM, when the California Independent System Operator (CAISO) issues emergency alerts, users are incentivized to reduce load or return power to the grid in exchange for monetary compensation based on the actual reduction in usage.

Furthermore, the California Energy Commission initiated the Demand Side Grid Support Program (DSGS) in 2022, providing guidelines for VPP aggregators. Compensation is calculated based on capacity fees. ELRP and DSGS are two representative programs in California that allow aggregators to support the grid through VPPs.

Against this backdrop, utility companies have partnered with aggregators to promote VPP demonstration projects utilizing home energy storage. For example, California’s largest utility, PG&E, has collaborated with Tesla and the solar and energy storage provider Sunrun for demonstrations. In the case of Sunrun and PG&E, the demonstration runs from August to October 2023, during the evening hours of 7 PM to 9 PM. During this period, solar generation sharply declines, yet high temperatures lead to sustained demand for air conditioning, putting pressure on PG&E. By integrating 8,500 home energy storage systems already installed by Sunrun, a virtual power plant with a continuous capacity of 27 MW and a peak capacity nearing 32 MW was created, sufficient to power 20,000 homes. Sunrun’s home energy storage and solar users can participate, with Sunrun retaining control of the equipment and scheduling power during PG&E’s demand. In return, participating users receive a $750 upfront incentive and a free smart thermostat.

Sunrun’s VPP management platform collaborates with the startup Lunar Energy, established in 2020 and backed by investors including Sunrun and Korea’s SK Group. Utilizing Lunar Energy’s cloud-based VPP management platform Gridshare, data from thousands of Sunrun’s home energy storage and solar users is aggregated. The platform employs machine learning technologies to assess past usage behaviors and real-time weather forecast data to generate predictions for each device’s household consumption, solar generation, and potential storage capacity. Users are also clustered based on characteristics to align with PG&E’s grid scheduling needs. Additionally, maximizing savings on energy bills for storage owners while increasing grid service revenue, while ensuring sufficient energy storage remains for potential outages, is essential.

The demonstration results indicate that, due to the project design, each household only needs to supply 2 hours of stored energy to the grid, minimizing user impact. Users receive a $750 incentive upon initial participation, leading to only 10% opting out during grid demand events—substantially better than the 50% dropout rate observed in other VPP demonstration projects. However, technical challenges were identified, including unpredictable failures in certain aspects of the storage systems, or customers having multiple brands and specifications of storage devices, which could lead to performance, capacity, and charge/discharge characteristics discrepancies, thus complicating control. These factors resulted in an average daily total scheduled capacity of less than 30 MW, falling short of the expected 34 MW.

Source: Industrial Technology Research Institute, ITIS Research Team (May 2025)

3. Conclusion

Climate change and extreme weather are challenging grid stability, and VPPs have emerged due to their ability to integrate decentralized energy sources, offering multiple benefits. Home energy storage, often viewed as an underutilized potential source of decentralized energy, has seen demonstration projects in Australia and the United States to verify technical and economic feasibility and assess appropriate market mechanisms. The results indicate that using home energy storage to form virtual power plants for grid services currently faces challenges both in market structures and technologies, as detailed below:

(1) Market Structure

For VPPs utilizing home energy storage to operate successfully, economic incentives are necessary to attract households and businesses, such as electricity bill credits and tax benefits. Acceptance and trust in VPPs among households and businesses remain challenges, requiring market education and outreach to enhance public awareness and acceptance. Moreover, existing electricity market structures may not accommodate the VPP operational model, necessitating adjustments, such as introducing dynamic pricing, demand response mechanisms, and lowering bid thresholds for ancillary services to support VPP participation in grid services. Standardized technical and operational protocols must also be established to ensure interoperability and collaborative functioning among different VPPs.

(2) Technical Challenges

Implementing and managing VPPs is a complex task that requires coordination among multiple devices while optimizing daily savings for individual owners and potential grid service revenue. Strong systems and advanced technological solutions are crucial to ensure the efficient operation of all devices within the VPP. Technical challenges include: (1) Integration of diverse devices: VPPs must incorporate various devices from different manufacturers, such as home energy storage batteries and solar power systems, necessitating standardized protocols to ensure interoperability and data sharing for real-time monitoring. (2) Data management and analysis: Real-time collection and analysis of vast amounts of data, including consumption behaviors, weather forecasts, and equipment status, require efficient data management systems and advanced machine learning algorithms for forecasting and optimization. (3) Cybersecurity: Ensuring the security of data transmission and device control is essential to prevent hacking and data breaches. (4) Rapid response to grid demands: Effective control algorithms and reliable communication infrastructure are necessary.

(The author of this article is an industry analyst executing the Industrial Technology Research and Knowledge Service Project at the Industrial Technology Research Institute.)