On Friday we spoke to Alex Georgiou, CMO of GTL Group and Co-founder of ShineHub, which is one of a dozen or so Virtual Power Plant (VPP) companies active in Australia. ShineHub was founded in 2016, back when the VPP concept was little-known. It built its own digital framework from scratch and Georgiou claims the company is an industry leader emulated by others – and it is certainly the case that ShineHub’s cloud-based approach appears more scalable than some of its rivals, some of whom use a physical installation of programmed hardware. ShineHub declared its VPP-compatible domestic solar-storage product ready for market in June 2021, calling it “the first end-to-end digital experience in the home solar industry”.
The company has 2,000 homes and 21 MW under its wing, as compared to 300 MW from all VPPs across the national Electricity Market, less than the Australian Energy Market Operator’s prediction in 2019 of 700 MW – and 205 MW is from a single company, Origin Energy lays claims to 205 MW, and planned a 2 GW expansion taking four years – but that was in March, before the sanctions war bit home. Electricity prices for Q1 are up 67% from Q4 2021, up 141% from Q1 2021, and are rising further in Q2.
Electricity price statistics from the Australian Energy Market Operator (AEMO)
Georgiou portrays his VPP as enough to offset three diesel and three gas power plants within the state of South Australia, and 18 such across the country. It took the company since 2019 to get to this point, but it is constantly accelerating. One of the first things Georgiou told us is that ShineHub has switched off its active marketing while it hires more salesmen, because the power price spikes since June 1st have seen the company inundated by word-of-mouth driven enquiries.
As global renewable energy investment soars in response to high fuel and power prices, it faces limits in manufacturing, transmission, and project finance. None of that is directly true for VPPs, whose most tangible element is the software used to integrate far-flung installations under a centrally controlled market entity. Because that software exists and operates via the internet, joining a VPP may not even need a site visit – only an internet connection. That done, a VPP member – typically residential, but potentially also from the C&I sector as power prices stay high – can sell power from his solar-plus-storage capacity with the best timing possible under variable pricing mechanisms.
There is a global lithium-ion battery shortage which has increased their price – but what isn’t more expensive now? This supply constraint is not a limit on par with a two-year polysilicon factory construction or a 5-year transmission line build out. As the Australian customer continues to be squeezed for electricity – which looks very likely – he will buy his way forward in that queue for batteries.
Asked about current high battery prices, Georgiou replied “Everyone says they’re high because they think the Tesla PowerWall is the only battery out there. The Powerwall is – please quote me on this – one of the worst batteries on the market in terms of performance, and is also one of the most expensive. It’s hurting the market because everyone thinks “I want a quote for a battery, I’ll get a quote for a Powerwall – oh it’s too expensive”.
Now there really has been a cost increase of 30% for lithium-ion batteries over the past year – but Georgiou points out a much bigger disparity, saying ShineHub provides the Alpha ESS 10 kWh battery for just $7,500 compared to the Powerwall’s $16,000 – and with “double the lifespan and a better warranty.” Georgiou seems to be quoting the cost of the 13.5 kWh Tesla PowerWall 2 there – but even the 13.3 kWh Alpha ESS offering is a lot cheaper at $10,000 versus the $15,000 Powerwall 2, both figures including installation – and that “Tesla markup” is indeed bigger than the past year’s lithium-ion battery cost increase. Georgiou is praising a product that is compatible with his VPP, while trashing one that excludes it, but the numbers back him up on it.
A broader point he makes on battery prices is that the nationwide rise in power prices has finally flipped the payoff of a battery installation to come good before the warranty expires. Those high prices should easily remain for years. By the time the West relaxes its Russia sanctions, or other oil and gas producers increase their output, or renewables themselves ease the grid situation – batteries will have had a price decline.
Besides low battery prices, what VPPs need is a market with active, innovative regulators, a society facing high power prices but with money to spend, and good irradiation. Australia is the posterchild for all of that. Even compared to the rest of the world’s energy woes Australia has looked hard-hit with the past month’s chaotic drama of wholesale market price spikes. The country is nominally wealthier than its Western peers and has a high cost of living thanks to transport costs – and the country was already the most active residential solar market in the world with one-third of households having an installation.
So far VPPs have been one of those neat little tricks with MW-scale pilot projects in California and similar places, but now you can look at Australia’s 16 GW of distributed solar capacity and begin to ask yourself how much will be gobbled up by VPPs, how fast.
As for precedents to examine, that mostly consists of pilot projects. None have failed to transition to normal market operations, but most are ongoing – with regulator Australian Energy Market Operator (AEMO) running its VPP Demonstrations Program from 2019 onwards, with every state involved with its own such project – Victoria state’s runs for two more years, but ends new rebates this month, for example.
Georgiou states that ShineHub’s most popular product is an all-in-one of solar, battery and VPP integration, with 120 sold a month – around 12 MW annually. “But now that electricity prices have changed, we expect battery retrofit to existing solar installations to become much more popular.” This product, under brother company Powwow’s sales pitch, is built for no upfront cost to the customer – a common approach, though Georgiou claims his is particularly generous in terms of maintenance, upkeep, and money-back guaranteed in case of system failure.
To back that, GTL Group, of which ShineHub and Powwow are members and Georgiou is CMO, have recently conducted a $42 million financing round. ShineHub pays $450 AUD per MWh for the power it draws from customers’ batteries, in addition to the typically $60 AUD per MWh solar feed-in tariff from the utility.
Besides cancelling its active marketing ShineHub isn’t accepting customers who have already-installed batteries from outside their scope of already-compatible setups – it has enough of a queue to work from within that scope, while it hires more software programmers alongside its new salesmen. Once they get to work – “In short order we’ll be opening it up to others as well,” says Georgiou. So you have a company selling automatic management software, which is downloaded from the cloud, and financed by ongoing payments from a system that produces ongoing payments, and this company’s employees are mostly software engineers and salesmen, with a smaller segment of solar engineers. This seems like something which can scale up very swiftly – Georgiou mentioned that an upgrade to the online ordering software quadrupled how many sales can be handled per worker.
In theory any battery can be made compatible with any VPP – the inverter of a battery installation outputs data, and the VPP control system inputs it, it’s just a matter of lining those up. But Georgiou states that most battery providers can’t participate in the full range of market functionalities at present – “As we test their APIs they’re very buggy, they can’t participate in Frequency Control and Ancillary Services (FCAS) and other grid-based markets. Not all batteries are the same, but to participate in the FCAS market you need to be able to respond within milliseconds – the battery has to react near-instantaneously.” Incidentally Georgiou also mentions an ongoing “heavily political” regulatory battle “determined by who is best funded” regarding the FCAS market – though he does not seem to expect an unfavorable outcome.
In one case ShineHub even wrote some of the firmware for a battery company itself, to make it capable of FCAS participation – but Georgiou states this is not looking to become a regular occurrence. So clearly this is all still new, and there is a lack of standardization and expertise – something that will change in due course. State governments are also informing consumers that the battery they purchase will limit which VPPs they can participate in.
The other issue with software compatibility is actively forbidding it. Tesla, Sonnen and SolarEdge provide both batteries and VPPs, so they doesn’t allow open access to their APIs – why would they. Georgiou states that the other “higher price point” batteries are “following their own in-house strategies in an Apple-style approach.” Facing that exclusionary tactic it will be interesting to see what ShineHub, with its claim to cloud-based advancement and ease of use, can carve out for itself while relying on partners for physical solar and battery installs and compatibility co-operation.
ShineHub is building one VPP in Australia’s National Electricity Market (NEM) – but this single entity is far-flung along thousands of kilometers of coast and hinterland with varying demand, supply, and transmission. Georgiou says that thanks to Australia’s regulatory framework, this can include microgrids of say 200 homes in a new housing development, which have one single collective grid connection – these are called “embedded networks” – but typically each individual installation is connected independently to the broader VPP. “In most countries that already have grids built, customers will naturally participate individually on the grid, going first to their nearest neighbors and then further away if the power isn’t available locally.”
Georgiou describes the network he’s building as a spiderweb with nodes, where each node has its own data readout and controls. “Just having battery storage only gets you so far, what you really need is to dynamically apply that storage in the most intelligent way possible. What we’re seeing in Australia is more and more markets opening up for VPPs, which means complexity increases exponentially of when to expend stored energy, and for what. You need to forecast market behavior combined with battery availability.”
So between API access for compatibility, and the predictive power a company gains, as it includes more and more of a market, you can see that there is a “natural monopoly” element to VPP expansion. Asked about overseas expansion into for example the US, Georgiou demurred – “We’re interested in South-East Asia. The US already has its own large VPP providers such as Sunrun. Going into the biggest markets in the world isn’t the best business strategy – we want to own smaller places and run the whole energy network for those places.”
When South-East Asia and solar is mentioned, the obvious country to ask about is Vietnam, and Georgiou reveals that ShineHub received unsolicited enquiries from half a dozen Vietnamese companies – little wonder considering the 5% to 10% average curtailment after that country’s quixotic addition of 14 GW in 18 months, and meanwhile Georgiou hasn’t even looked at the country’s market structure yet.
Georgiou sees VPPs as having huge potential for developing nations – “If you look at the most populated countries in the world, most of them don’t have reliable grids – that’s a huge opportunity. The old grid, even here in Australia, is causing huge issues with the new way that energy needs to run. It’s a classic business disruption case – the legacy business has established infrastructure which holds them back from competing with the new business. These developing countries with bad infrastructure have been at a huge disadvantage in the past, but now the most efficient infrastructure is the dynamic microgrid+VPP style of operations. That will also provide a huge cost advantage as it’s powered by renewables without needing fuel all the time. If these countries that haven’t built large traditional grids can develop their new ones along the new distributed paradigm, they can leapfrog a lot of developed countries for efficiency in the next 10 to 20 years, and have a significant economic advantage as a result.”
ShineHub is headquartered in New South Wales, but like Australia’s module manufacturer Tindo Solar, which we spoke to last month, its most active market is South Australia, which Georgiou attributes to the state’s generous subsidies. In fact South Australia recently halved its battery subsidy and is now bringing it to an end after 2,000 last entrants – but that termination is being offset by electricity prices, which are even higher there than in the rest of Australia. Not only that, but Georgiou informs us that the South Australian authority, which granted itself the right to curtail domestic solar last year, has begun using that capability, and warned of potential rolling blackouts – which have not materialized so far this time around. “Look at the Australian Capital Territory (ACT) in contrast, they sourced renewable energy and now their power prices are remaining low – the idea is to extend this to the whole grid.” says Georgiou.
The state and federal government, which both flipped Labor in the past several months, seem more interested in grid-scale than domestic energy storage – “because the Energy Minister thinks domestic batteries are $15,000”, grumbles Georgiou – but the stage is set regardless.
There’s one last thing – when blockchain was mentioned, as it so often has been in connection with VPPs, Georgiou responded – “Blockchain is amazing technology on its own merits. In the electricity market in Australia it is completely redundant, it is not billable or able to be used for any revenue-based calculations or payments. The grid rules are that smart meters are the ones that collect the data and are responsible for all revenue. Adding blockchain to this is completely redundant, unnecessary and inefficient. However, blockchain is really, really useful in a new grid situation, because there you can write whatever rules you want. If you want to make blockchain the revenue source of truth you can do that, that’s where blockchain makes sense. But for an established grid like Australia or Europe or USA, I don’t see value in it.”