Report on FCAS Events and BESS Investment Returns in Australia

Report on FCAS Events and BESS Investment Returns in Australia

July 2024
Renewables
4
 min reading

Discover how FCAS events and BESS investments are integral to the stability and profitability of Australia's NEM.

1st July 2024

Introduction

The integration of renewable energy sources in Australia's National Electricity Market (NEM) has significantly increased the demand for Frequency Control Ancillary Services (FCAS). Battery Energy Storage Systems (BESS) have emerged as a key player in providing these services, ensuring grid stability and generating substantial investment returns. This report delves into the numbers, examples, and financial returns associated with FCAS events and BESS investments in Australia.

FCAS in Australia

FCAS is crucial for maintaining the stability of the NEM. It consists of eight contingency markets designed to handle sudden changes in supply and demand, ensuring the frequency remains at approximately 50 Hz. BESS has become the preferred technology for providing FCAS due to its rapid response times and low emissions (Energy-Storage.News)​​ (Mondaq)​.

FCAS Market Dynamics

1. Historical Prices and Trends:

   - Between 2003 and 2015, the average cost of FCAS regulation was $1.6/MW/hr, which increased to $26/MW/hr during 2016-2021 due to higher variability and renewable energy penetration (Mondaq)​.

  - Contingency FCAS prices also saw a rise from $4/MW/hr to $23/MW/hr during the same period.

2. Current Revenue Potential:

   - According to Cornwall Insight Australia, participants in the new Very Fast (VF) FCAS markets can earn an average of AU$9.64 (US$6.45)/MW/hr for Raise-1 and AU$10.95/MW/hr for Lower-1 services【(Energy-Storage.News)​.

   - Over a 20-year forecast period, the average returns are expected to stabilize around AU$5.5/MW/hr(Energy-Storage.News)​.

 BESS Investment and Returns

Since 2017, state initiatives and federal support have driven exponential growth in Australia's BESS market. By 2023, 25 large-scale batteries were operational, with more than 200 projects in various stages of development (pv magazine Australia)​.

Key Examples and Financial Returns

1. Hornsdale Power Reserve:

   - Known as the "Tesla Big Battery," this project has set benchmarks for BESS performance. Since its inception, it has provided substantial FCAS and energy arbitrage services, generating significant revenue.

   - In its first year, Hornsdale earned approximately AU$13 million from FCAS alone, demonstrating the high revenue potential of such investments (pv magazine Australia)​.

2. Waratah Super Battery:

   - Located in New South Wales, this project boasts 850 MW/1.68 GWh of capacity. It secured financing through a long-term government contract, ensuring a stable revenue stream.

   - The project will operate as part of a system integrity protection scheme (SIPS), providing a "shock absorber" for the grid during extreme events (pv magazine Australia)​.

Revenue Streams

1. FCAS:

   - Historically, FCAS contributed up to 80% of BESS revenue. This share has recently decreased as energy arbitrage gains importance (pv magazine Australia)​ (Mondaq)​

   - In 2023, utility-scale BESS projects derived 55% of their market revenue from FCAS and 45% from energy arbitrage (pv magazine Australia)​.

2. Energy Arbitrage:

   - Energy arbitrage involves charging batteries when prices are low and discharging during peak demand. In 2022, the share of revenue from energy arbitrage jumped to 40%, highlighting its growing importance (Mondaq)​

   - The increased spread in intraday wholesale energy prices due to higher renewable energy penetration signals more opportunities for profitable arbitrage (pv magazine Australia)​..

 Financial Support and Future Outlook

Financial support mechanisms, such as ARENA grants and loans from the Clean Energy Finance Corporation, play a critical role in mitigating the high capital expenditure of BESS projects. The federal government's Capacity Investment Scheme also offers long-term underwriting agreements, providing revenue certainty and attracting investment (pv magazine Australia)​.

Future Market Projections

1. Capacity Growth:

   - By 2026, it is expected that over a gigawatt of batteries will be available for the VF FCAS market (Energy-Storage.News)​.

   - Research by Wood Mackenzie indicates over 40 GW of BESS projects are in various stages of development, with annual proposals exceeding 8 GW since 2019 (pv magazine Australia)​.

2. Revenue Stability:

   - While the revenue stack for BESS will remain volatile over the next decade, FCAS and energy arbitrage will continue to be significant contributors. New market opportunities, such as voltage stabilisation and congestion management, are expected to emerge (pv magazine Australia)​.

Conclusion

FCAS events and BESS investments are integral to the stability and profitability of Australia's NEM. With substantial financial returns from both FCAS and energy arbitrage, supported by robust government initiatives, the future of BESS in Australia looks promising. Continued investment in BESS will be essential to meet renewable energy targets and ensure a stable and resilient energy grid.

For further information, please refer to the original sources:

- [Energy-Storage.News](https://www.energy-storage.news)

- [PV Magazine Australia] (https://www.pv-magazine-australia.com)

- [Mondaq](https://www.mondaq.com)