Just prior to Christmas, the Australian Energy Market Commission (AEMC) unveiled a landmark determination enabling virtual power plants (VPPs) to compete directly with large-scale generators in the energy market.
According to the AEMC, the reform promises significant cost savings, lower emissions and reduced energy prices for consumers.
The changes streamline operations by allowing VPPs, industrial demand response systems and aggregated batteries to participate alongside traditional power stations. However, a lack of mechanisms to forecast how these resources respond to daily price fluctuations has historically created challenges for the Australian Energy Market Operator (AEMO), driving up operational costs.
AEMC Chair Anna Collyer said the reform was a transformative step for the energy market.
“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.
Moving into “dispatch mode”
The reform introduces a new “dispatch mode,” allowing retailers to bid VPPs, household batteries, community batteries, backup generators, and energy-intensive businesses managing consumption into the wholesale electricity market.
"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," Collyer said.
AEMC modelling projects the reform could deliver A$834 million in cost savings between 2027 and 2050. To overcome early barriers, a A$50 million incentive scheme will be introduced in April 2026, prior to the new framework’s implementation in May 2027.
"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."
This reform is central to the AEMC’s strategy for integrating consumer energy resources into the wholesale market and the new framework will take effect from May 2027, with incentives available from April 2026.