FCAS continues to drive the majority of revenues for battery storage in the NEM (there are five active utility-scale battery storage projects operating in the NEM; three in SA and two in VIC), however given the forecast pipeline of prospective storage projects (with two 500MW+ projects having already been announced in 2021), it is unclear how the proportion of total revenues may change in the future. We take a look at 2020 to see how the revenues for battery storage projects changed.
In CY19 there were two major contingency events; QLD separation event in August and the SA separation event in November. In CY20 we saw three major contingency/price spike events all occurring in January; 4 Jan – bushfire separation between NSW and VIC, 30 Jan – high temperature event, 31 Jan – separation between SA and VIC due to a storm destroying the interconnector which lasted for 17 days. It should come as no surprise that total revenues from batteries in 2020 were up on 2019 driven by contingency FCAS services; primarily raise 6 second and lower 5 minute services.
The proportion of revenues delivered from the FCAS raise 6 service for Ballarat, HPR and Lake Bonney FCAS were up on CY19 by 25, 16 and 22 percentage points respectively. Total revenue for those assets was also up by 10%, 61% and 174% respectively (Lake Bonney was pro-rated as CY19 assumed operation for only Nov and Dec 2019). Dalrymple revenues were up by more than 230% in CY 20 compared to CY19, however, Gannawarra was down by 24% driven mostly by lower energy revenues which fell more than 50% on CY19. Interestingly, across all the battery storage assets (excl. Lake Bonney) energy revenues were down 62% in CY20 on CY19. However, to put that into perspective energy revenues in CY20 for HPR were almost equal to those in CY18 (~92%).
In CY20 on a $/MW and $/MWh installed basis Dalrymple was the best performer returning more than $575,000 per MW installed and over $2 million on a $/MWh installed basis. Ballarat and Lake Bonney returned $210,000 and $230,000 per MWh installed respectively, while HPR returned more than $340,000 on a MWh installed basis.
The nature and duration of contingency events will continue to drive significant variations in battery storage returns over the next decade, however, expected increases in energy spot market volatility will likely see a signficant increase in the percentage of revenues generated from the energy market. While new battery projects will bring increased supply to FCAS markets potentially driving prices lower, we can reasonably expect two things; similar levels of contingency events in the future and new spot markets for storage (Fast Frequency Response, Primary Frequency Response, Inertia and Operational Reserve) that will likely be implemented as part of the ESBs 2025 market design.
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