If you've bought a home battery in the last year or two, or you're about to, you've probably heard the term "VPP", which is likely why you're here. Your installer mentioned it. Your retailer emailed about it. The battery app has a toggle for it.
It's fair to want to know what you're actually agreeing to. This guide explains what a virtual power plant is, why they exist, what happens to your battery when you join one, what you can realistically expect to earn, and what to check before you sign anything. We run one, so we'll say where we sit on each point, but the aim here is for you to understand VPPs well enough to judge any offer, not just ours.
What is a virtual power plant?
A virtual power plant (VPP) is a group of home batteries, solar systems, electric vehicles, hot water or air conditioning, and other flexible devices that are connected over the internet and coordinated so that, together, they charge or discharge, or use energy at the right time to help the electric grid.
A traditional power plant is a single large generator in one place. The "virtual" part just means there's no single building. The "power plant" part of each building is real - it's the solar on your roof, the EV in your driveway, the battery attached to your home.
A VPP coordinates thousands of these small suppliers or consumers of electricity, spread across suburbs and states: a 10 kWh battery in Hoppers Crossing, a 13 kWh one in Penrith, a hot water system in Adelaide. Individually they're tiny. Coordinated, a few thousand of them can deliver the same burst of power as a large gas peaking plant, and they can do it in seconds.
A VPP can and does sell electricity and grid services into the National Electricity Market (NEM) in the same way a physical plant does.
The company that coordinates the fleet is called the VPP operator or aggregator. Sometimes that's your electricity retailer. Sometimes, as with Daydream, it's an independent operator that isn't tied to a retailer at all.
Why does Australia need them?
Three things have happened to the grid at once.
Rooftop solar changed the shape of the day. Australia has more rooftop solar per person than any other country. In the middle of a sunny day, so much power is flowing from rooftops that wholesale prices often go negative and distributors struggle with voltage. Then the sun goes down, everyone comes home and turns on the air conditioner, and demand spikes just as solar disappears. The gap between the midday glut and the evening peak is the single biggest problem in the modern grid.
The evening peak is expensive. The grid has to be built to cope with the worst half hour of the worst day of the year to prevent blackouts. A handful of hot summer evenings drive a huge share of network and generation costs, and those costs end up on everyone's bill whether they used the air conditioner or not.
Coal is leaving. The old baseload plants that used to cover the evening peak are closing, and the replacements are wind, solar and storage. Storage is the part that solves the evening problem, and a lot of that battery storage is now sitting in garages ready to be used.
A home battery is already doing the right thing for its owner: it soaks up solar at lunchtime and discharges it in the evening. A VPP extends that to the grid. On the handful of evenings when the system is really stretched, the battery discharges a bit more than it otherwise would, and the owner is paid for it. Everybody's bill is a little lower because less expensive peaking capacity had to be built or run.
That is the whole idea. A VPP is a way of paying households for flexibility they already own.
How does it actually work?
Picture a hot Tuesday in January in Melbourne. It's 6 pm, 38 degrees, sunset is approaching and solar output is dropping off, and half the state has just turned the air conditioner on. The wholesale electricity price, which was close to zero at midday, is heading for the market cap.
The VPP operator's software has been watching the forecasts all afternoon. Some time earlier, it sent a quiet instruction to the batteries in its fleet: make sure you're full by 5 pm. (Some may have topped up from the grid at a near-zero price to do it.) Now, as the price spikes, it sends another signal - discharge!
Across a few thousand homes, batteries that would have been slowly covering the evening home load instead push hard for an hour or two. Some of that power still runs the house; the rest flows out to the street and props up the local network. The operator sells that energy, or the capacity to deliver it, into the market or to the network, and shares the proceeds with the household.
By 8 pm the price has fallen back, the batteries return to normal operation, and most people never noticed anything happened.
A few things worth knowing about what's going on under the hood:
- Communication is over the internet, usually through the battery manufacturer's cloud, sometimes through a small gateway device, and increasingly through standards like CSIP-AU or OpenADR. Your home WiFi needs to be reliable; that's often the only hardware requirement.
- Most days, most of the time, nothing happens! A typical VPP calls on batteries on somewhere between 10 to 30 evenings a year. The rest of the time the battery does exactly what it would have done anyway.
- How much of your battery they use is the key variable. Some programs reserve a small slice. Some will drain it to a set minimum. This is the single most important thing to read in any VPP's terms, and we'll come back to it.
What can you earn?
This is where you should be a bit sceptical of anyone who gives you a single confident number, including us.
VPP income in Australia generally comes in one or more of these forms:
- A sign-up or upfront payment, sometimes framed as a battery discount. Often the biggest single number, and often tied to a minimum term.
- A fixed annual or monthly credit for being available, regardless of how often you're called.
- Per-event or per-kWh payments when your battery is actually used.
- A better feed-in tariff or plan rate bundled in by a retailer-run VPP.
- A revenue share of what the operator earned from the market.
Realistic all-in figures for a household battery in Australia currently range from roughly $200 a year at the modest end to $700 for larger batteries in programs that use them heavily (more than 200 times per year). Offers above that usually involve either a bigger battery, a long lock-in, or aggressive cycling that you'll want to understand before accepting.
The honest framing is that a VPP is unlikely to be the reason your battery pays for itself. Self-consumption, avoiding peak tariffs and the federal battery rebate do most of that work. A VPP is a useful top-up on top of a battery you'd have bought anyway, and it's a way of making that battery useful to the neighbourhood rather than just your own meter - and being paid to help.
Will it wear out my battery?
Every cycle on a lithium battery contributes a little to its degradation, so a VPP that cycles your battery hard will shorten its life slightly compared with one that doesn't.
In practice the effect is usually small, because most VPPs call events on a limited number of days and the battery would have been discharging in the evening anyway. The difference is that it might discharge deeper, or have been charged from the grid first. Check three things:
- Does the operator's use of the battery stay within the manufacturer's warranty conditions? Reputable operators design their programs around this. Ask directly.
- Is there a minimum state of charge you can set? You should be able to keep a reserve for your own use, especially if you rely on the battery for backup.
- How many cycles or events per year does the program allow? Unlimited is a red flag.
At Daydream, our Sundown program calls batteries on a limited number of summer evenings, works within manufacturer warranty parameters, and lets you keep a reserve. We'd rather have a battery that's in the fleet for ten years than one we've flogged for two.
What do I need to be eligible?
The requirements vary by operator, but the common ones are:
- A compatible battery. Each VPP can only talk to the brands and models it has integrated with. This is the most common reason people can't join a particular program.
- An internet connection the battery can reach reliably.
- A location the operator covers. Some programs are national, some are limited to particular states, networks or even postcodes (because network payments are tied to specific congested areas).
- Not already being in another VPP. A battery can only take instructions from one operator at a time.
- Sometimes, a specific retailer. Retailer-run VPPs generally require you to be on one of their plans.
Solar is usually expected but not always strictly required. A battery with no solar can still provide evening capacity, and some programs will take it.
Do I have to change my electricity retailer?
It depends entirely on who runs the VPP.
Retailer-run VPPs almost always require you to be on that retailer's plan, and the VPP benefit is bundled into the plan's rates. This isn't necessarily bad, but it means you have to assess the whole package. A generous VPP credit on top of an expensive plan can leave you worse off than a cheap plan with no VPP at all. Compare the total annual cost, not the headline VPP payment.
Independent VPPs, which is the model Daydream runs, sit alongside whatever retail plan you already have. You keep shopping for the best retail deal, and the VPP pays you separately. The trade-off is that independent operators can't fold a benefit into your tariff, so the payment is explicit and you'll see exactly what it is.
Do I have to sign a contract?
Usually there are terms of some kind, and you should read them with an eye on three things:
- Minimum term and exit fees. A big upfront payment is normally tied to a lock-in of one to several years. If you leave early, you may have to repay some of it. That's a reasonable arrangement as long as it's clear.
- What they can do to your battery. Depth of discharge, number of events, whether they can charge from the grid on your account, and whether you can override an event.
- Data. What they collect, who they share it with, and what happens when you leave.
Here's how Daydream does it. Our Sundown program has no lock-in contract: you can leave at any time, and we pay on performance, so what you earn reflects what your battery actually delivered during events rather than a promise made at sign-up.
If batteries in NSW are enrolled under the Peak Demand Reduction Scheme (PDRS), that scheme pays us upfront for capacity that has to stay in the program, and it claws the money back if a battery leaves early. We ask for a 12-month term and pay monthly to spread the benefit evenly. If you do need to leave early, we simply stop the monthly payments from that point: you keep everything you've been paid, and we never ask for money back.
Can businesses join a VPP?
Yes, and in many ways they're the best participants. A commercial battery, a cool room, a pump station, a car park full of EV chargers or a building's HVAC system can all be dialled back for an hour on a hot evening, and the amounts of flexibility are much larger than a single home. Commercial and industrial demand response has been a mainstream grid tool for decades; what's new is that the same platforms can now coordinate homes alongside them.
Business programs are typically paid per kilowatt of flexibility delivered rather than as a flat household rate. If you run a site with a battery or controllable load and want to understand what it's worth, get in touch.
Is joining a VPP worth it?
For most people with a compatible battery: yes, provided you choose a program whose terms you've actually read.
The reasons to join are that you'll earn something you otherwise wouldn't, you'll help keep the lights on for your neighbours on the worst evenings of the year, and you'll be part of the reason the grid needs fewer gas peakers. The reasons to be careful are the same ones that apply to any energy offer: bundled plans that hide the real cost, lock-ins that outlast your enthusiasm, and operators who treat your battery as theirs.
Pick an operator who tells you plainly how often they'll use your battery, how much of it, and what you'll get for it. If you can't get straight answers to those three questions, keep looking.
Frequently asked questions
What's the difference between a VPP and demand response? Demand response is the broader term: any arrangement where energy use shifts in response to a signal from the grid or the market. A VPP is a specific kind of demand response built around coordinated batteries and generation. Sundown is a demand response program; the fleet of batteries inside it is a VPP.
Will I lose power during a VPP event? No. A VPP event changes how your battery is used; it doesn't disconnect you from the grid. If the grid itself goes down during an event, your battery's backup function (if it has one) works as normal, which is why keeping a reserve matters.
Can I opt out of an individual event? Most programs let you, sometimes with a reduced payment for that event. Check the terms. Ours does.
Does a VPP affect the federal battery rebate? The Cheaper Home Batteries Program requires eligible batteries to be VPP-capable, but it doesn't require you to join one. Joining is your choice.
What if I move house? The battery is part of the property, so VPP membership usually ends or transfers when you sell. Check whether any upfront payment has a clawback.
What happens to my data? A VPP operator sees your battery's state of charge, charge and discharge rates, and usually your site's import and export. That's what it needs to operate. It shouldn't need more, and it shouldn't be selling it. Ask.
Want to see what your battery could do this summer? Daydream's Sundown program is an independent VPP pilot for homes in Melbourne's west and selected areas interstate. No change of retailer, a flat incentive, and plain terms. Register your interest or ask us anything first.