Virtual power plans (VPPs) will be able to compete directly with large-scale generators in the energy market from 2027, with a final determination from the Australian Energy Market Commission (AEMC).
The reforms aim to create efficiencies by allowing virtual power plants and commercial and industrial demand response and aggregated batteries to compete directly with traditional power stations. It is expected the reforms will benefit consumers through significant cost savings, lower emissions, and reduced energy prices.
The AEMC said currently there is no mechanism for the market to predict how these resources will respond to daily price fluctuations.
This gap in market knowledge creates significant operational challenges for the Australian Energy Market Operator (AEMO) and can lead to costly system operations. These problems are growing as the rollout of batteries and electric vehicles gathers pace.
AEMC Chair, Anna Collyer, said the work represents a pivotal moment in Australian energy market’s evolution.
“This reform is like giving the electricity system a pair of glasses – suddenly, it can see and respond to retailers’ and customers’ actions that were previously invisible.
“We are enhancing market efficiency by creating new opportunities for both energy suppliers and users to participate in ways that weren’t possible before,” she said.
The reforms create a new “dispatch mode” that allows retailers to bid these resources into the wholesale electricity market.
This includes VPPs combining household batteries, community batteries, backup generators and large energy users managing their consumption.
“Whether it’s data centres shifting computing load, manufacturers using backup generators, commercial chillers, or household batteries aggregated as virtual power plants, retailers can now bid these resources into our wholesale market,” Ms Collyer explained.
The AEMC said its modelling shows that if these resources participate, it could deliver $834 million in cost savings between 2027 and 2050 through more efficient market operation.
To overcome initial barriers and secure these long-term benefits for consumers, the reforms include a $50 million incentive scheme for early participants.
“This improved visibility will lead to more efficient generation use, lower system costs, and reduced energy prices for all consumers.
“While there are costs to encourage early participation, the long-term benefits for consumers far outweigh these initial investments. It’s a win-win that doesn’t require changing behaviour, just smarter market operation,” Ms Collyer said.
The reform represents the primary focus of the AEMC’s work program for integrating consumer energy resources into the wholesale electricity market.
The new framework will take effect from May 2027, with incentives available from April 2026.
For more information, visit the AEMC project page for more information and contact details.
