At demand levels averaging only ~200-700MW, FCAS markets are dwarfed by the ~20,000MW energy demand in the NEM. Nonetheless, with 8 different markets to participate in, the potential value that participating in FCAS can add to a participant’s revenue should not be underestimated.
In this Chart of the week, we examine the frequency and extent of extremely high pricing events that occurred in the FCAS markets over the past three years. Specifically, very high pricing events are defined as instances when prices equal or exceed 300 times the median price for each FCAS market in a given year.
Figure 1 shows each of the 8 FCAS markets experienced at least one occurrence of a very high pricing event over the past 3 years. On average, these events were most common in the fast Contingency markets (6 sec response) for both Raise and Lower. Figure 2 illustrates that during these events, Fast Contingency Raise prices spiked to as high as $2000/MW in 2020 and $700/MW in 2022. While Regulation services appear to have the highest prices when these events occur, with peak prices exceeding $2000/MW in the last 3 years, they are also the least likely markets to experience such spikes.
The events that caused these very high FCAS pricing events are well documented in AEMO’s Quarterly Energy Dynamics reports. The lowest quarterly FCAS system cost of the past 3 years was recorded in 2021 Q1, amounting to $33 million. The top 3 highest quarterly FCAS system cost records over the past 3 years are (1) $227 million in 2020 Q1, (2) an average of ~$135 million in 2021 Q2-Q4, and (3) $98 million in 2022 Q4. The common contributing factor is separation of a region from the rest of the NEM caused by forced and planned outages of transmission lines. This leads to a localised FCAS requirement that can only be met by providers in the isolated region, resulting in an imbalance in demand and supply and very high prices.
Low-probability, high-impact events have a significant impact on the FCAS markets. Cornwall Insight has an in-house FCAS forecast model that takes into account these events. Our model is based on engineering techniques and assumptions, leveraging our extensive experience, comprehensive research, and independent perspective on relevant areas. For more information on Power and Market Modelling or other consultancy products, please contact firstname.lastname@example.org.