Australian homeowners with solar panels and batteries could soon trade their electricity in a digital marketplace developed by a consortium of electricity providers, energy tech startups, energy retailers and energy agencies.

The Decentralised Energy Exchange – or deX – was launched on Thursday with the promise to “change the way energy is produced, traded and consumed at a local level in Australia”.

Phil Blythe, founder and CEO of GreenSync – an energy tech startup and partner in deX – says the project reflects a shift in energy production from a centralised model of large-scale power plants to a decentralised model of rooftop solar.

“The uptake of rooftop solar is one of the highest in the world per capita in Australia – around 1.6 million rooftops are fitted with solar – and it’s being rapidly followed by battery storage,” Blythe says.

This has led to a shift away from thinking of households solely as energy consumers towards them being viewed as active participants in the grid.

“If we’re going to have customers that can participate in a grid, then they need to get paid for their participation,” he says. “We needed … a new way of thinking about how these decentralised grids are going to work and fundamentally, how do we do that cost-efficiently.”

With that challenge in mind, in 2016, GreenSync got together with electricity network operators United Energy and ActewAGL, energy tech startup Reposit Power, and energy retailer Mojo under the auspices of the Australian Renewable Energy Agency’s A-Lab; an initiative that the Arena chief executive, Ivor Frischknecht, describes as an “innovation sandbox”. Arena contributed $450,000 towards the total project cost of $930,000.

What they came up with has yet to be done anywhere in the world: a network of “virtual” power stations made up smart grids of rooftop solar panels and batteries. The aim is to reduce energy costs, drive investment in renewable energy, stabilise the electricity grid and buffer it against surges in demand such as the recent heatwaves.

With power now being generated not only at the centre of the grid but out at the fringes, deX acts like traffic lights controlling the flow of power in all directions according to where the need is, explains Frischknecht.

“For example, a particular line is overloaded at a particular time of the day or it thinks it might be, what the deX exchange does is for the network to effectively post that problem in an automated fashion and for households with batteries and solar to say, yep I’ve got a solution for you,” he says. “DeX allows that exchange to happen in both a technical way and a financial way.”

This communication will be enabled by a system developed by Reposit Power that controls the home-based battery and links it to the exchange. This smart system communicates with the marketplace in real time, looking for incentives that the household’s energy portfolio can participate in.

An individual household’s solar panels and battery might seem like small fry but aggregated together, they became a significant electricity resource. Several thousand households, each with a battery holding around five kilowatts, can operate together as a virtual power plant with a capacity well into the megawatt range.

These virtual power plants represent a huge untapped resource; not least because they require a minuscule fraction of the cost of building a new coal-fired power plant, but also because they can be far more responsive to surges in energy demand.

“If we talk about the need for a blackout this year or next year, there’s no way we can go and build a power plant in that time,” Blythe says. “We need to think about how to use the smarts to harness those assets and bring them together and advertise these contracts that can be fulfilled in three to six months at the longest, and respond to heatwaves or sudden climate events.”

But if so much of the load is being taken up by individual household solar systems, does this take the pressure off governments to invest in energy infrastructure? Are we at risk of decentralising too much?

Frischknecht argues that if anything, we are still too reliant on centralised energy production.

“All of the load is out at the periphery of the network; the load is where this generation and storage is,” he says. “It means that the network will be better supported and ultimately we could end up with cheaper networks, which are the majority of our electricity costs, so this is a pathway to lower electricity costs.”

The federal minister for the environment and energy, Josh Frydenberg, says the project is an important initiative that creates two-way interface between energy consumers and local network operators.

“This holds the potential to deliver on the government’s commitment to increasing the reliability of Australia’s energy system, whilst supporting a more effective and cost-competitive rollout of renewable energy to households,” Frydenberg says.

While rooftop solar currently represents around 16% of renewable energy generation in Australia, Frischknecht says it is estimated to increase its contribution to anywhere between 20 and 50% of all electricity generation.

The consortium is launching two pilot projects in the ACT and on Victoria’s Mornington Peninsula, each involving around 5,000 households. The projects are also being overseen by a reference group that includes the Australian Energy Market Operator, the Australian Energy Market Commission and Energy Consumers Australia.