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 the context of climate change and geopolitical uncertainties, energy independence and grid resilience have become increasingly important topics. With the liberalization of electricity markets and the improvement of dispatch regulations, Distributed Energy Resources (DERs) are gaining attention for their potential to enhance the resilience of power infrastructure.

1. Introduction

As climate change and geopolitical uncertainties evolve, energy independence and grid resilience have emerged as critical issues. The opening of electricity markets and the refinement of dispatch regulations have highlighted the potential of Distributed Energy Resources (DERs) to bolster the resilience of power infrastructure. However, traditional decentralized resources often lack the scale necessary to participate in electricity market transactions or to assist with grid services. This has led to a growing interest in the concept of a Virtual Power Plant (VPP).

VPPs utilize advanced information and communication technologies to integrate diverse decentralized energy resources, enabling coordinated operation and participation in electricity markets through a unified platform that facilitates demand forecasting, aggregation scheduling, and optimization. Within a VPP, Aggregators play a crucial role, responsible for integrating and managing these decentralized resources, allowing them to function as a cohesive unit in market participation and grid service provision.

The core technologies of VPPs include three main components: management software platforms, communication technologies and devices, and controllers. The management software platform is essential for a VPP, requiring capabilities for forecasting generation, load profiles, and market prices while providing real-time monitoring of decentralized resources. By leveraging big data processing and multi-objective optimization techniques, the platform can optimize resource scheduling and investment decisions, as well as perform Customer Baseline (CBL) calculations and revenue settlements. In terms of communication technologies and devices, standardized communication protocols must be established, such as those between the VPP and Transmission System Operators (TSOs) or other decentralized resources, alongside the deployment of stable network infrastructures (such as 4G/5G, WiFi) that enhance communication security. Controllers serve as critical interfaces between power systems, facilitating interoperability and coordination among various systems.

With advancements in technology and declining costs, the application of energy storage devices in residential settings has been increasing, drawing attention to the role of home energy storage systems within VPPs. Historically, home energy storage systems were primarily used as backup power during grid outages and often remained idle. However, if these storage devices can be fully utilized to provide grid services, they could demonstrate significant potential. By implementing centralized control and scheduling via a management platform, the optimal use of power resources can be achieved. For instance, during peak consumption periods, a VPP can activate home energy storage systems to release power, alleviating pressure on the grid, while opting to recharge during off-peak periods or high solar generation times. This approach not only enhances grid stability but also brings economic benefits to households. 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

In Australia, approximately one-third of residential rooftops have solar installations, and one in seven households has a home energy storage system, with a cumulative installation of 309 MW by 2023. The Australian government views home energy storage as a crucial component of VPPs and is actively promoting demonstration projects, the most notable being Tesla’s two VPP initiatives in South Australia.

One project is a demonstration in collaboration with the South Australian government, initially funded by a AUD 2 million grant from the state government, along with AUD 20 million in loans from the Renewable Technology Fund. Tesla plays a leading role in this initiative, overseeing the design and development of the South Australian VPP while providing and installing the Tesla Powerwall series products in 50,000 homes. The target group consists of tenants from Housing South Australia, similar to social housing in Taiwan. Tesla provides the Powerwall free of charge, retaining ownership and control, ensuring that at least 10% of the charge remains available for household use, and guarantees that residential electricity prices are 25% lower than standard rates.

Another VPP solution is the Tesla Energy Plan, available to private residences. Participants must own or purchase a Powerwall from Tesla, with each Powerwall required to have a corresponding PV system of less than 15 kW. New Powerwall customers receive a AUD 1,000 credit towards their electricity bills, while existing Powerwall users receive a one-time AUD 100 credit. Participants can also earn grid support points. Ownership of the Powerwall lies with the user; however, during the contract term, Tesla retains control, limiting operations to a maximum of 50 discharge cycles per year (with a total discharge limit of 50×13.5 kWh) while ensuring that at least 20% of the charge remains available for household use.

The business model for the South Australian VPP is illustrated below:

Source: ITIS Research Team, Industrial Technology Research Institute (2025/05)

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

• VPP Participants: Users purchase and install Powerwalls from Tesla, potentially receiving discounts or credits towards their electricity bills. The reimbursement costs are borne by Tesla or Energy Locals, depending on mutual agreements. Users receive annual rewards in the form of electricity bill credits issued by Energy Locals, with any contribution from Tesla subject to agreement.
• VPP Aggregator: Initial funding comes from government grants and revenues from the sale of storage devices. Long-term revenue plans involve delivering surplus electricity back to the grid through the VPP, providing services to alleviate distribution congestion or participating in electricity market transactions. Revenue generated will be distributed between Tesla and Energy Locals based on mutual agreements.

(2) California, USA

California is increasingly facing challenges to its grid stability due to extreme weather, particularly wildfires during hot summers, prompting the state to actively develop VPPs. For instance, the California Public Utilities Commission (CPUC) launched the Emergency Load Reduction Program (ELRP) in 2021, incentivizing reduced load or electricity returns to the grid during emergencies from 4 PM to 9 PM between May and October, with bonuses based on actual reduced consumption.

Additionally, the California Energy Commission initiated the Demand Side Grid Support Program (DSGS) in 2022, providing guidelines for VPP aggregators. Both the ELRP and DSGS represent key market solutions in California that allow aggregators to support the grid.

In this context, utilities are collaborating with aggregators to promote home energy storage VPP demonstration projects. For example, California’s largest utility, PG&E, has partnered with Tesla and solar and storage system provider Sunrun to conduct demonstrations. During the Sunrun and PG&E demonstration project from August to October 2023, which ran from 7 PM to 9 PM, solar generation significantly decreased, yet high temperatures sustained demand for air conditioning, placing strain on PG&E. By integrating 8,500 home energy storage systems installed by Sunrun, a virtual power plant was formed, generating a continuous output of 27 MW and a peak capacity near 32 MW, sufficient to serve 20,000 households. Users with Sunrun’s home energy storage and solar systems are eligible to participate, with Sunrun maintaining control over the equipment to manage electricity scheduling during demand periods, offering participants a pre-paid incentive of $750 and a free smart thermostat as compensation.

Sunrun’s VPP management platform collaborates with Lunar Energy, a decentralized energy platform company founded in 2020, backed by investors including Sunrun and South Korea’s SK Group. Lunar Energy’s cloud-based VPP management platform, Gridshare, aggregates energy data from thousands of Sunrun’s home energy storage and solar customers. The platform employs machine learning technologies to forecast household consumption, solar generation, and potential storage capacity based on historical usage patterns and real-time weather data, segmenting users by characteristics to align with PG&E’s grid scheduling needs. It also aims to optimize electricity bill savings for storage owners while ensuring adequate energy reserves for emergency outages.

Demonstration results indicate that due to the project’s design, each household only needs to provide the grid with 2 hours of stored energy, minimizing impact on users. Participants receive a $750 incentive upon initial enrollment, resulting in only 10% opting out during peak demand events, a significant improvement compared to a typical 50% dropout rate in other VPP demonstrations. However, some technical challenges emerged, including unforeseen failures in certain storage system components or customers owning different brands and specifications of storage devices, leading to performance discrepancies and control issues. Consequently, the average daily total capacity scheduled was less than 30 MW, falling short of the initial expectation of 34 MW.

Source: ITIS Research Team, Industrial Technology Research Institute (2025/05)

3. Conclusion

Climate change and extreme weather pose challenges to grid stability, and VPPs have emerged as solutions by integrating decentralized energy resources, yielding multiple benefits. Home energy storage, often viewed as an underutilized potential source of decentralized energy, is being demonstrated in Australia and the USA to validate technological and economic feasibility and assess suitable market mechanisms. Results show that the application of home energy storage to form VPPs for grid services still faces challenges on both market and technical fronts, outlined as follows:

(1) Market Challenges

To successfully operate VPPs utilizing home storage, economic incentives are necessary to attract residential and commercial participation, such as electricity price rebates and tax incentives. Acceptance and trust in VPPs among households and businesses also present challenges, necessitating market education and outreach to enhance public awareness. Furthermore, current electricity market structures may not accommodate the operational models of VPPs, requiring adjustments such as the introduction of dynamic pricing, upward demand response mechanisms, and lowering the barrier for ancillary service bidding to support VPP participation in grid services. Additionally, standardized technical and operational specifications must be established to ensure interoperability and collaboration among different VPPs.

(2) Technical Challenges

Implementing and managing VPPs is a complex task that requires coordination among multiple devices while optimizing both individual owner’s bill savings and potential grid service revenues. These processes must be supported by robust systems and advanced technological solutions to ensure the efficient operation of all devices within the VPP. Technical challenges include: (1) Integration of diverse devices: VPPs must integrate multiple devices from various manufacturers, such as home energy storage batteries and solar energy systems, requiring standardized protocols to ensure interoperability, allowing data sharing and communication for real-time monitoring. (2) Data management and analysis: Efficient data management systems and advanced machine learning algorithms are needed to collect and analyze large amounts of data, including consumption behavior, weather forecasts, and device status for predictions and optimizations. (3) Cybersecurity: Ensuring the security of data transmission and device control is crucial to prevent hacking and data breaches. (4) Rapid response to grid demand: Efficient control algorithms and reliable communication infrastructure are essential.

Note: The author is an industry analyst participating in the Industrial Technology Research Institute’s Industrial Technology Foundation Research and Knowledge Service Project.