The world’s largest battery storage facility aims to boost grid stability, reducing power price volatility and supporting renewable energy in a state that has recently suffered through an energy crisis that saw power prices spike to eye-watering level.

The development will require 1000 connected batteries installed in homes and businesses across the state providing five megawatts of peaking capacity.

While it will be the largest virtual power plant in the world, AGL views it as a demonstration project, suggesting bigger and better things are in the future, assuming the development works.

AGL is undertaking the project with the Australian Renewable Energy Agency and US-based energy storage and management company, Sunverge.

“This project is the world’s largest, the first of its kind and an innovative solution to both help customers manage their energy bills and at the same time contribute to grid stability,” AGL managing director Andy Vesey said.

“It offers consumers the opportunity to be part of the world’s largest virtual power plant, giving them greater ability to consume more of the energy generated from their own rooftop solar systems, lowering power bills, reducing emissions and purchasing a battery at a significant discount,” he said.

“The virtual power plant will be capable of storing 7MWh of energy, with an output equivalent to a 5MW solar peaking plant.

“We believe it will demonstrate alternative ways to manage peaks in energy demand, contributing to grid stability and supporting the higher penetration of intermittent, renewable generation on the grid.

“This project is core to AGL’s strategy of being a manager of distributed energy resources.”

The project will cost some $20 million, with ARENA providing conditional approval of $5 million.

Joining Vesey, at an event in Adelaide to announce the initiative were South Australia’s Energy Minister Tom Koutsantonis and ARENA CEO Ivor Frischknecht.

Koutsantonis said he was pleased to see AGL looking at innovative ways to use batteries to increase the penetration of renewables.

“We encourage others in the private sector to also consider how dispatchable renewable energy technology can be used to deliver electricity around-the-clock,” he said.

Frischknecht added the project could point to solutions to South Australia’s grid challenges and reduce the risk of power price shocks in the state.

“Australia is on the cusp of a battery storage revolution as technology costs continue to fall. ARENA is at the forefront of figuring out how batteries can best support renewable energy to provide affordable, reliable and sustainable power,” Frischknecht said.

“ARENA expects virtual power plants to play a significant role in the future as more renewable energy is connected to our power networks. The approach can ease local network constraints in South Australia, displace gas power and complement the Victorian interconnector, especially during times of peak demand.”

The project will be rolled out in three phases over about 18 months.

Customers will be offered the opportunity to save on their energy bills in return.

Customers participating in the project will be able to purchase a heavily discounted 5kW/7.7kWh energy storage system including hardware, software and installation.

In the first phase, running until April 2017, the first 150 customers based in metropolitan Adelaide will be able to purchase a Sunverge energy storage system.

For customers with sufficient excess solar generation this is expected to result in a seven year pay-back period.

Consumers who don’t have solar already will be able to purchase an appropriately-sized solar system packaged with their battery.

Later phases will see an offering to narrower zones within metropolitan Adelaide where peak demand management and other network support services can be demonstrated.

It is hoped the project can demonstrate how relationships between electricity networks, retailers, consumers and the market operator can create new sources of value and stability in a renewable energy future.

The VPP works by using a cloud-connected intelligent control system that allows the batteries to be directed in unison.

The majority of the time it will help consumers to consume their stored solar power during peak demand periods, benefiting both them and the broader community to manage peaks in electricity demand.

If the batteries are operated independently they cannot be relied on to provide grid services.

When working together at this scale, they can be used to provide grid stability services by discharging at a time that will be of greatest benefit for the customer and the community, AGL said.

A 5MW virtual power plant can deliver enough energy to power 1000 homes.

South Australia leads the nation in the uptake of wind energy and roof-top solar with renewable sources accounting for more than 40% of the electricity generated in the state.

The state government aims to extend this to 50% by 2025.