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Round and Round the Market: Black Coal vs Batteries

This year appears to be the year of the battery, with the volume of projects that have been announced or in some stage of planning approaching the 10GW mark it is worth taking a look at how batteries are performing in the FCAS markets over the last two years.

Currently FCAS revenues make up somewhere between 90%-70% of total battery storage market revenues, however, we would expect this proportion to decrease in the future as prices for FCAS in the near to medium term decline and the volatility in the wholesale energy market increases and batteries take advantage of 5-minute settlement (to be introduced later this year).

Figure 1 shows the total value of FCAS revenues received by fuel type. We used H2 data from 2019 and 2020 as a comparison to remove the impact of the separation event in SA in early 2020. What we can see is that across raise contingency FCAS markets we have seen a slight decline in the total revenues across contingency services, except, lower 5min and lower 60 second services which have increased slightly and both regulation services have declined significantly. Raise Regulation services have dropped by more than 50% down from a total H2 value of ~$56mn to ~$20mn (Lower Regulation value also dropped by 50%). This is a boon for those with traditionally high FCAS causer pays factors, which will have certainly helped both wind and solar operating costs over the last 6 months.

Black coal appears to have been the biggest loser seeing more than $20mn in lost Regulation Raise FCAS revenue in H220 compared to H219. Interestingly, while battery storage also saw reduced overall revenues in Regulation FCAS they captured ~25% of the total value of the market in H220 up from ~18% in H219, this was mostly at the expense of Black Coal which fell ~7ppts to capture around 45% of the Raise Regulation market (on a dollar basis).

Across all FCAS markets battery storage increased its volume share except in Raise 6 and 60 second markets where it was stable/declined slightly. Interestingly, while Black Coal lost volume share to battery storage in all lower market services, Black Coal significantly increased its share of revenues in the Lower 6 and 60 second markets increasing from ~5-10% to 60-70% of total market revenues. As black coal leaves the market towards the end of the 2020s more services will need to be provided by other sources.

Our internal FCAS Price Curve can assist you when evaluating future price impacts of FCAS service both as a source of revenue as well as to estimate future costs, please get in touch to learn more at enquiries@cornwall-insight.com.au