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“I feel the earth move under my feet”: from high to lows

We have seen a dramatic shift in FCAS price fortunes over the past year or so, going from all-time highs of ~$229.3mn in Q1 of 2020 (due to the separation event) to only ~$40.1mn in Q1 2021. Since 2019 we have also seen regulation raise prices decline from robust prices in July to Dec 2019, which averaged over $40/MW/hr to an average of $15/MW/hr in 2020 over the same period. Regulation FCAS has traditionally been a staple revenue stream for battery storage, accounting for ~40% of revenues for Horsdale in 2019 and ~15-20% of revenues in 2020.

So, what has changed in the market since the highs of 2019 to push FCAS prices lower (excl. the separation event in February 2020). We looked at the regulation raise service and which technologies and units have been setting the price and the price bands of those units when they set the price.

In Q1 2019, Gordon, Gladstone and Torrens B units were responsible for 22%-25% of all price setting intervals. Gorden set the price most often, and the price at which it offered regulation was between $20-27/MW/hr.

In Q1 2020, things were a little different due to the separation event. Interestingly Millmerran, Bayswater and Pelican Point were much more active price-setters, with Pelican Point setting the price often at a price band of ~$37/MW/hr, but this resulted in actual average prices of ~$112/MW/hr due to other units and constraints during February 2020. In March 2020, we saw battery storage enter the top 10 units for price setting in raise regulation in the NEM, with the Gannawarra battery involved in setting the price on ~2.5% of occasions.

In January 2021, Hornsdale Power Reserve was involved in price setting for raise regulation in more than 5% of instances at an average marginal price band of only ~$7.4/MW/hr (interestingly, when it was involved in price setting, the actual price averaged higher at $12/MW/hr likely due to co-optimisation constraints and efficiencies).

We are seeing a clear trend in FCAS markets that battery storage is increasingly setting the price. In Q1 2019, batteries were involved ~2.22% of instances, Q1 2020 ~3.73%, Q1 2021 ~9.09% (at average marginal bid band price of ~$8.1/MW/hr, compared to ~$30.1/MW/hr in 2020 and ~$20.6/MW/hr in 2019). New bidding strategies are likely to emerge for storage as it reviews its historical position as a price taker in FCAS and bids more reflectively.

Other markets like lower regulation and new markets such as Fast Frequency Response will become more important, and a targeted trading strategy is now more important than ever. There is significant value for storage, but nuance is needed to identify the most advantageous route to market. Get in touch if you want to talk about storage optimisation or FCAS forecast: enquiries@cornwall-insight.com.au.