By AGILE Consulting Engineers, Solar PV and Battery Energy Storage Systems (BESS) specialists.
Ask most people how a Virtual Power Plant (VPP) makes money and they will describe arbitrage: charge when power is cheap, discharge when it is expensive. That is real, but for a lot of registered VPPs it is not even the main game. Frequency Control Ancillary Services (FCAS) revenue, and the tension between chasing FCAS payments and chasing energy price spikes with the same battery at the same moment, is a genuine engineering and commercial problem that AEMO documented directly during its VPP Demonstrations program. Understanding how these revenue streams actually interact matters more than knowing any single number.
Table of Contents
- Wholesale Energy Arbitrage
- Contingency and Regulation FCAS Explained
- How Revenue Stacking Works
- The Operational Conflict AEMO Identified
- Realistic Framing of Returns
- Why Program and Battery Design Change the Answer
- What to Do Next
- FAQ
Wholesale Energy Arbitrage
The most intuitive VPP revenue stream is wholesale energy arbitrage: charging a battery fleet when the spot price in the National Electricity Market (NEM) is low, often overnight or during the middle of the day when rooftop solar output is high, and discharging when the spot price rises, typically in the evening peak. AEMO’s own reporting has noted that rooftop solar has been reshaping daytime price patterns, with rooftop solar output overtaking grid scale solar, wind and hydro combined as a share of NEM supply in the first quarter of 2026, which has pushed more of the price volatility a VPP can arbitrage into the early evening ramp period as solar output falls away.
Arbitrage revenue for any individual battery depends heavily on how volatile local wholesale prices actually are, how much of the battery’s capacity is reserved for the customer’s own use versus market dispatch, and how the aggregator’s dispatch algorithm forecasts and reacts to price. It is a genuine revenue stream, but for smaller residential scale batteries it is rarely the dominant one on its own, which is part of why most VPP programs also pursue FCAS participation alongside it.
Contingency and Regulation FCAS Explained
FCAS are the suite of ancillary services AEMO procures to keep system frequency within its normal operating band, and they come in two broad families. Contingency FCAS responds to a sudden, unplanned event, such as a large generator or transmission line tripping, and is structured around three response speeds in both raise and lower directions: a 6 second fast response, a 60 second slow response to help stabilise frequency, and a 5 minute delayed response to help restore it, giving six distinct contingency service categories overall. Regulation FCAS is different in character, operating continuously to correct smaller, ongoing deviations from the target frequency under AEMO’s automatic generation control, rather than responding to a single discrete event.
A battery fleet is well suited to several of these categories because inverters can ramp output up or down within seconds, which is exactly the response speed the fast contingency categories reward. This is one reason batteries and VPPs have become a meaningful part of the FCAS provider base in the NEM alongside traditional synchronous generation, though the mix of who provides which FCAS category shifts over time as more storage connects to the grid.
How Revenue Stacking Works
Revenue stacking is the practice of using a single battery asset to earn from more than one market simultaneously, or in close sequence, rather than committing all of its capacity to one product. In principle a battery might reserve a portion of its capacity as a standing FCAS commitment, so it earns availability payments for simply being ready to respond if called upon, while using its remaining capacity, and the same physical hardware, to respond to wholesale price signals when frequency conditions are normal.
This sounds straightforward on paper. In practice, stacking requires software that can manage genuinely competing claims on the same physical asset in real time, because the battery only has one power rating and one usable capacity, and every megawatt committed to FCAS availability is a megawatt not available for wholesale dispatch at that moment, and vice versa. Getting this allocation right, continuously and automatically, is one of the core software engineering problems an aggregator’s EMS (energy management system) or DERMS (distributed energy resource management system) has to solve, and it is also where the operational conflict AEMO identified becomes most visible.
The Operational Conflict AEMO Identified
AEMO’s VPP Demonstrations knowledge sharing reports documented a specific and genuinely instructive conflict between chasing wholesale energy price signals and honouring FCAS commitments with the same battery fleet. The reports found that responding to an energy price signal that conflicts with a contingency FCAS event could impact a VPP’s ability to accurately deliver on its enabled FCAS, and observed real cases of under delivery during the trial, including situations where a Lower FCAS response requiring batteries to charge collided with a high wholesale spot price that would normally prompt the same batteries to discharge.
The resolution AEMO’s demonstration program worked toward was rule based prioritisation: when system frequency sits within its normal operating frequency band (NOFB), the VPP may respond to energy price signals as intended, but once frequency moves outside that normal band, the VPP is expected to prioritise delivering its contingency FCAS commitment and set aside the energy price response until the frequency event has passed. This is a useful illustration of why revenue stacking is not simply a commercial decision layered on top of the hardware. It is a control system design problem, with a clear priority order that has to be encoded into the dispatch logic before the asset is enrolled, not worked out reactively during a live frequency event.
Realistic Framing of Returns
Actual VPP returns vary considerably by program, by state, by battery size and by how much of the asset’s capacity is committed to FCAS versus arbitrage versus reserved for the customer’s own use, and any specific dollar figure quoted for one program or one battery size should not be assumed to transfer to another. What can be said with more confidence is the direction of the trend: registered VPP capacity across the NEM grew from roughly 350 MW in early 2024 to around 900 MW by the first quarter of 2026, which reflects both more batteries being installed, helped substantially by the Cheaper Home Batteries Program’s roughly 30 per cent upfront discount introduced from July 2025, and more retailers and aggregators building out revenue stacking capability to make participation worthwhile for customers.
Program specifics, including how a given retailer or aggregator splits revenue with the customer, what percentage of capacity is reserved, and which FCAS categories a program targets, change often enough that anyone assessing a specific offer should check the current terms directly with the provider rather than relying on marketing figures that may reflect a different battery size, state or market period.
Why Program and Battery Design Change the Answer
Battery size matters more than it might first appear. A larger commercial or industrial battery has more headroom to dedicate meaningful capacity to a standing FCAS commitment while still leaving useful capacity for arbitrage or on site load management, whereas a smaller residential battery is often making a sharper trade off between the customer’s own backup and self consumption needs and what is actually offered to the market. State matters because wholesale price volatility and FCAS demand differ by NEM region, driven by each region’s own generation mix and network constraints. Program design matters because the aggregator’s software determines how well the asset actually captures the revenue that is theoretically available, and a well engineered dispatch and stacking algorithm can meaningfully outperform a simplistic one operating on an identical battery.
This is why a technically literate assessment of a VPP program has to go beyond the headline revenue estimate and into how the underlying engineering, the PCS (power conversion system) specification, the telemetry, the dispatch software, actually handles the trade offs described above.
What to Do Next
If you are evaluating a VPP revenue model, whether as a retailer building a program, an aggregator specifying a fleet, or a commercial energy user assessing whether to enrol a battery, the numbers in a pitch deck are only as reliable as the control logic behind them. This is the point where a technical review of the dispatch and stacking architecture can save a lot of disappointment after go live. We have helped teams pressure test exactly this kind of revenue model before committing to hardware or a program.
FAQ
What is the main way a VPP makes money?
Most VPPs combine wholesale energy arbitrage, buying low and selling high against NEM spot prices, with FCAS revenue from being available to respond to frequency events, rather than relying on either stream alone.
What are the different FCAS response speeds?
Contingency FCAS is structured around a 6 second fast response, a 60 second slow response, and a 5 minute delayed response, each available in raise and lower directions, alongside separate regulation FCAS that continuously corrects smaller ongoing frequency deviations.
What conflict did AEMO find between FCAS and energy price response?
AEMO’s VPP Demonstrations program found that responding to a high wholesale price signal could conflict with an active contingency FCAS obligation, for example when a Lower FCAS response requiring charging collided with a price signal favouring discharge, and documented real cases of under delivery as a result.
How did AEMO’s trial resolve the conflict between FCAS and price response?
The approach was to prioritise contingency FCAS delivery whenever system frequency sits outside its normal operating frequency band, and only allow the VPP to respond to energy price signals when frequency is within that normal band.
Can I expect a specific dollar return from enrolling my battery in a VPP?
No single figure applies broadly, because returns depend on the specific program, the state, the battery’s size, and how much capacity is reserved for FCAS versus arbitrage versus personal use, so current terms should always be checked directly with the provider.
Has VPP participation in the NEM grown recently?
Yes, registered VPP capacity across the NEM increased from around 350 MW in early 2024 to roughly 900 MW by the first quarter of 2026, alongside strong growth in household battery installations supported by programs such as the Cheaper Home Batteries Program.
