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FIRST there was ride-sharing and room-sharing. Now Tesla is bringing us energy-sharing, with the announcement that it is building the world’s largest “virtual” power plant in Australia.

Last month, the government of South Australia revealed that it had hired Elon Musk’s firm to fit 50,000 homes with solar panels and lithium ion batteries. The aim is to shake up the traditional model of having all houses connect to a central power station.Instead, houses that can generate power themselves will be wired up separately.

The government says that by producing their own solar energy, participating households will shave . Anything they don’t use will be stored in their batteries and fed into the grid to reduce bills for everyone in the state, to the tune of (all prices given are in US dollars).

It sounds like a win-win for everyone – if it works.

at Australia’s national science organisation CSIRO says conditions are ripe for a shift towards decentralised energy. A major driver is the dramatic fall in the prices of solar panels and batteries, he says. “Just two years ago, batteries were twice the cost they are now.”

As prices fall, it makes sense for individual households to install their own power systems, but the coordination offered by a virtual power plant means the entire community can benefit.

Software oversees the plant to ensure that energy is shared in the most cost-efficient way between battery-fitted households and the main grid, Graham says. It means that if a home uses less energy than it generates, the surplus can be redirected to another that needs a bit extra. If a heatwave is predicted tomorrow, every battery can recharge from the grid overnight at cheap, off-peak rates, then feed the grid when everyone turns on their air conditioning in the morning. Or if the forecast is looking cloudy, limiting solar energy generation, the software will ensure homes top up from the grid to ensure continuous supply.

“These plants can cut costs for everyone by offsetting price-gouging from energy companies”

Sonnen, a German battery company, has already tried this peer-to-peer model on a smaller scale. In 2015, they created a virtual power plant that now connects about 10,000 German homes. Customers pay $10,000 for the solar panels and battery but no longer have to buy grid electricity – they rely solely on the shared energy in the virtual power plant. They pay a flat fee of $30 per month to be part of the network, instead of the typical $200 per month for grid energy. That means they recoup the upfront costs and start making a profit after about five years – which is half the warranty period of the battery.

And it won’t be just households signed up to the scheme that benefit. Virtual power plants can cut costs for everyone by offsetting price-gouging from energy companies during peak demand, says at the University of Melbourne.

This has long been a headache for South Australia, where gas companies have been known to jack up prices 100-fold if asked to provide emergency back-up from gas-fired power stations during a heatwave or grid failure. A separate Tesla project in South Australia has already shown that batteries can forestall these price spikes by providing cheaper energy on demand (see “Storing the wind“).

Spreading out the state’s power supply could also improve resilience, because it’s unlikely that every battery would fail at the same time, says Graham. Plus, home batteries don’t require a large expanse of land like a central power plant.

With these advantages, it’s no surprise that CSIRO is predicting that needs will come from home solar panels and batteries by 2050. Maybe we won’t need central power stations at all.

Power hungry

Well, not quite. Even if every house in South Australia was fitted with a solar panel and battery, the energy harvested would satisfy only about one-third of the state’s daily requirements.

“It’s not just about powering homes,” says Graham. “Heavy industries like aluminium smelting chew through heaps of energy, so you still need big power generators to support those.”

And virtual power stations would be much harder in countries with less reliable sunshine, says at Lancaster University, UK. “When the sun rises at 8.30 am and sets at 3.30 pm in winter and it’s drizzly all day, it’s hard to see the UK running on virtual power plants.”

Nevertheless, a recent energy-sharing trial by battery company Moixa suggests these systems could play a useful role in the UK grid. The firm partnered with Oxford City Council to fit , and found that residents’ power bills fell by about 35 to 45 per cent.

The company is now hoping to sell its energy-sharing platform to 50,000 UK homes by 2022, with the solar panels and batteries costing $7000 upfront.

It also plans to incorporate electric car batteries into its network. “If, for example, you worked at a factory with massive solar panels on the roof, you could charge your car at work and use its battery to power your home at night,” says Moixa co-founder .

In South Australia, the first 25,000 homes plugged into Tesla’s virtual power plant will be social housing properties, with the government covering the upfront costs. This kind of approach is important, says McConnell, otherwise low-income households could miss out.

homeowners who register their interest will then be invited to join the network. They will have to pay for the installation themselves and then recoup the cost through their discounted energy bills over several years. The final $625 million network will have a capacity of 250 megawatts – similar to that of a small coal-fired plant – and is expected to be completed by 2022.

We still don’t know for sure whether virtual power plants will be economical and reliable on such a large scale. “One question on my mind is, what’s going to happen on peak hot days?” says Graham. “Solar energy will pour into customers’ batteries but if they also crank their air conditioning, will there be enough spare for the grid?”

Even so, other countries are ploughing ahead with their own virtual power plants. Sonnen announced in October that it had struck a deal to build a and a In December, US company Stem Inc. announced it had .

“The ultimate hope is that virtual power plants will solve the storage issues of renewable energy”

McConnell believes these systems could be suitable for developing countries, too. “It might be like the mobile phone revolution in South-East Asia where some parts basically bypassed landlines,” he says. “You could see a similar thing with virtual power plants bypassing traditional energy infrastructure.”

The ultimate hope is that virtual power plants will finally solve the storage issue that has plagued renewable energy for years. If so, it won’t matter so much if one area is cloudy, because a home there can tap into energy stored in a battery in a sunny part of the country.

Tesla’s system will be the first big test of this new energy model. Although it won’t completely replace conventional power in the short term, it is set to become a mighty competitor.

And if it can indeed save everyone money and cut carbon emissions to boot, it will prove the old adage that a problem shared is a problem halved.

This article appeared in print under the headline “Virtual power to the people”