The choice of Chart of the week was an easy one following Saturday’s storms that ‘reined’ down on South Australia. The state became isolated from the rest of the National Electricity Market after one of ElectraNet’s pylons, supporting the interconnector between SA and Victoria, was knocked down[1].
The consequence of this islanding from the rest of the grid has been a divergence of FCAS prices – prices paid to market participants that contribute to keeping the network within a narrow frequency band – between SA and the rest of the NEM. The chart below shows the change in the average price[2] between the wholesale energy market and each FCAS market before and after the damage to the interconnector on Saturday afternoon. As illustrated, whilst there has been a small increase of $26Wh on the wholesale energy price, all the action has been in the FCAS markets, particularly the lower 5-minute and lower regulation markets, which have increased by $1,922/MW/hr and $2,885/MW/hr respectively. One of the main contributions to the increased prices and MW dispatched is local conditions triggering minimum threshold limits for FCAS services, making the market more active.
This extreme increase in FCAS prices represents an early Christmas present for battery owners in SA who have been able to earn significant revenues in the days since the outage.
The chart below details our estimates of spot market revenue for some of the batteries operating in SA and the source of those revenues[3]. As expected, the increase in FCAS prices is providing a revenue windfall for battery owners in the SA. Spare a thought, however, for SA wind and solar farms, which will likely bear a disproportionate share of the costs for the FCAS payments as outlined in this previous Cornwall Insight Australia analysis.
The experience of SA over the past week illustrates the significant windfalls batteries can enjoy during low-probability, high-impact events. Any future revenue forecasts upon which battery project financing relies should recognise these events and incorporate likely windfalls that occur infrequently but can generate significant returns for battery owners over a short period. Whilst FCAS prices are likely to decline over time with increased battery storage on the NEM, extreme FCAS prices will likely persist periodically if extreme weather events impacting electricity infrastructure become more prevalent.
Our in-house battery revenue forecasting model provides revenue estimates from low-probability, high-impact events that provide investors and financers with potential revenue profiles for different storage assets over time. Our model is based on engineering techniques and assumptions using our vast experience, comprehensive research, and independent view of relevant areas. For more information on our battery model or other modelling products, don’t hesitate to contact enquiries@cornwall-insight.com.au.
[1] https://www.abc.net.au/news/2022-11-14/sa-blackouts-compared-to-2016-electricity-cut/101649566
[2] We have used the 3 days before and after the event to calculate the average
[3] Estimates have been made using AEMO’s available SCADA data
