Feast or famine? FCAS costs in South Australia

Frequency Control Ancillary Service (FCAS) prices are highly volatile, at times resulting in short periods of extremely high FCAS cost. Three such events in recent history are the South Australian (SA) islanding events in November 2019, February 2020, and November 2022. During these events, FCAS costs in SA totalled $16 million, $109 million, and $34 million, respectively.

What does not receive as much attention is that these three events accounted for 91% of South Australian FCAS costs over the past five years, as shown in the chart below.

Source: AER South Australia quarterly local FCAS costs

Figure 1 shows quarterly SA FCAS costs since 2018. This figure shows that the lion’s share (91%) of SA FCAS costs in the past five years can be attributed to three market events. There is significant revenue opportunity for flexible assets such as grid-scale batteries, demand response, and virtual power plants during major market events such as the islanding of a NEM region. These events’ ‘force-majeure’ nature makes them challenging to appropriately value in business cases.

On the one hand, such market events are likely to significantly contribute to the value stack and should not be overlooked. On the other, investment decisions that are excessively reliant on capturing these market events are at risk of being overly optimistic, as an asset’s profitability would be significantly impacted by a scenario where it could not respond to a market event due to unforeseen circumstances.

Market fundamentals highlight a growing need for frequency control in the long term. The power system is transitioning from a system dominated by centralised thermal generation to a diverse portfolio of intermittent renewable generation. This transition is leading to a reduction in system inertia and a greater need for frequency control. However, the strong grid-scale battery pipeline and major upcoming interconnector projects will have a major impact on FCAS markets. One such example is the Project EnergyConnect interconnector which connects SA to Victoria and New South Wales and will reduce the likelihood of SA islanding.

Source: Transgrid

Cornwall Insight Australia’s FCAS subscription service equips clients to successfully navigate these risks and opportunities in the FCAS markets. Our NEM energy and FCAS models are based on market-validated assumptions and sound power systems principles. For more information on our subscription services or other bespoke consultancy products, please contact enquiries@cornwall-insight.com.au.

To keep reading, please log in to your account

Related thinking

Energy storage and flexibility

R1 and L1 revving up the BESS revenues

In our ‘The VFF… Very Fast and Financially rewarding market so far’ Chart of the week, the two new contingency markets, the Very Fast raise contingency FCAS market and the Very Fast lower contingency FCAS, were analysed and demonstrated the high participation of big batteries along with VPPs and DERs....

Low carbon generation

An investigation into REZ capacity factors during Victoria’s dark doldrums

As the grid transitions to much higher levels of renewable penetration, the range of generation outcomes on any given day increases. The worst of these ranges are known as dark doldrums when there is a combination of poor conditions for wind and solar generation, usually a windless day in winter....

Commercial and market outlook

The VFF… Very Fast and Financially rewarding market so far

On 9 October 2023, 1pm (market time), we saw the start of two new contingency FCAS markets. The Very fast raise contingency FCAS market, and the Very fast lower contingency FCAS. Upon commencement of the VF FCAS market, a commissioning period of two weeks with an initial max requirement of...

Commercial and market outlook

Is the sun setting on utility solar?

The Federal Government has legislated emissions reductions of 43% below 2005 levels by 2030. Sourcing electricity from renewable technologies is fundamental to meeting this, with a much-publicised target of 82% renewables in the grid by 2030 – up from a current value of 38% over the last year. Fortunately, the...

Commercial and market outlook

The Very Fast FCAS market is about to commence – a look at a possible time-of-day profile for R1

On 9 October 2023, 1pm (market time), the dispatch of the new Very Fast (VF) FCAS market in the NEM will commence and will add two new markets for contingency FCAS, Raise 1 (R1) and Lower 1 (L1). AEMO has released a final industry go-live plan to keep track of...

Low carbon generation

“Ooh, a storm is threatening, My very [interconnection] today”: Can states utilise interconnection to share wind resources?

Penetration of renewables continues to dominate the energy news, as we saw renewables as a proportion of total demand reach new heights this week to a new record of ~70% penetration. In light of this continuing march toward a renewable-dominated grid (building on some analysis we did in Chart of...

Energy storage and flexibility

How long is the ‘Golden time of day’ for batteries?

A key part of the business case for grid-scale standalone batteries is the arbitrage opportunity between low daytime wholesale prices (when renewable energy generation from solar is plentiful) and high evening prices (when the sun goes down and household demand ramps up quickly). The share of battery revenue coming from...

Low carbon generation

MLF changes in NSW in the past decade

MLF, short for Marginal Loss Factor, represents the portion of electricity losses that occur along the transmission network between a connection point and the Regional Reference Node (RRN). Within the NEM, the MLF serves as a metric to quantify these losses along the network, playing a pivotal role in determining...