One of these things is not like the others: FCAS separation value

Energy storage has been at the forefront of conversations resulting from AEMO’s newly released 2020 Integrated System Plan (ISP). The ISP states that 6-19GW of dispatchable resources are needed to support more than 26GW of new renewables. So where will battery energy storage fit in and where will they make their money?

We see from most of the utility scale battery storage  projects in the NEM that more than 75%-80% of their market revenues are generated from Frequency Control Ancillary Services (FCAS) markets. Of these the largest contributor in FCAS revenues has been from regulation raise services usually accounting from 25%-50% of all battery storage revenues.

For the most part FCAS markets are created equal – FCAS volumes are procured globally (i.e. NEM wide) and prices settle at identical levels across the states most of the time. Prices usually deviate as a result of contingency events (interconnector failing or generator tripping), constraints binding or specific local requirements. We analysed the times where prices deviated between interconnected regions to highlight the benefit of locating storage, for FCAS purposes, in particular regions.

Q1 2020 was the highest quarter for FCAS costs and FY20 FCAS costs were around double those seen last year. We know that FCAS can be extremely volatile and the high value it can deliver is driven primarily by contingency events. In Q1 2020 we saw the SA islanding event which saw SA islanded from the rest of the NEM for ~18 days (31 Jan to 17 Feb) the duration of the price spikes from this event skew the analysis and so we removed Feb 20 from our data.

In FY 20 batteries in SA would have made ~$290,000 more in FCAS (per MW enabled) than if they were located in VIC (assuming they were active in all the FCAS markets), batteries in NSW would also have been ~$76,000 better off and NSW batteries would also have been ~$50,000 more lucrative then those in QLD.

Interestingly, if Raise Regulation was the priority for a battery storage asset then NSW should be the state of choice as it had the highest prices ($37,000 higher than QLD), however SA has much higher prices in raise 6 second ($66,000 higher than VIC) and all lower services (lower 6 and 60 each ~$83,000 higher than VIC).

While asset owners cannot predict contingency events occurring they can review the historic price outcomes from these events to ensure that when these events occur again (and they will) that their assets are in the best position to take advantage of these FACS price separation events.

Developing a robust business cases for flexible assets in the NEM requires stacking revenues (where possible) and placing assets in network areas (or states) where they can be most valuable.Join us for more in-depth insights into the revenue streams for flexible generation on 16 Sept 2020.