MELBOURNE, Aug 5 (Reuters) - Australia's AGL Energy (AGL) on...

MELBOURNE, Aug 5 (Reuters) - Australia's AGL Energy (AGL) on Friday launched what it called the world's largest "virtual power plant", a network that will link 1,000 households and businesses with rooftop solar and batteries which can be centrally controlled.

The A$20 million ($15 million) project in South Australia involves installing solar power storage batteries which have software that allows power flows into the grid to be operated centrally, helping stabilise the grid at times of high demand.

"This isn't just about putting batteries into homes, it's about putting batteries into homes and then being able to control those collectively for the benefit of the overall system," AGL Chief Executive Andy Vesey told Reuters.

The five-year test launched in South Australia comes at a crucial time as the state, which relies on wind and solar power for 40 percent of its power, has already faced power price spikes and outages at times of high power demand when coal- and gas-fired power supplies were limited.

The state is already considering investing A$500 million to build an extra transmission link between South Australia and one of its neighbouring states to help shore up power supplies.

The project aims to show that the extra 5 megawatts of capacity from the virtual power plant could help stabilise power flows and limit price spikes and help defer capital that might need to be invested to support demand on the grid, Vesey said.

"At times when the system is under stress...the intelligent system will bring energy to the market when it needs to. It gives a lot of flexibility," Vesey said.

The big deterrent to adopting battery storage at the moment is price, around A$10,000 for an average home.

So AGL, backed by the Australian government and U.S.-based Sunverge, which will be supplying the first 150 batteries, will be offering the smart batteries at discounts of as much as 80 percent to encourage households to participate in the project.

"The really interesting thing to me is it gets consumers participating in their own energy future," Vesey said. ($1 = 1.3065 Australian dollars)