Over the past year, prices in the Contingency FCAS markets have been on a steep downward trend, with average prices falling below levels deemed attractive by “price-setting” batteries. As a result, the average enablement of some batteries like Victoria Big Battery and Hornsdale Power Reserve is now at historical lows.
Contingency FCAS markets pay for enablement (the readiness to respond) while energy delivery only occurs if a contingency event happens. However, FCAS enablement also means forgoing potential wholesale market revenue. When wholesale prices are “not interesting”, the cost of providing Contingency FCAS is essentially tied to the probability of being activated. Thanks to stable grid frequency in recent years, this means the cost is close to zero in most intervals.
Smaller batteries often bid at or near the floor price ($0/MW) to ensure they will be enabled in Contingency markets. But price-setting batteries don’t find those floor prices attractive enough to lower their own bids. As a result, their lowest bid price now exceeds the average prices, leading to significantly reduced enablement in Contingency markets.
Interconnector separations once delivered lucrative revenues from Contingency markets (earning $10 million in a week wasn’t unusual!), but with more batteries entering the market, the likelihood of potential price spikes is diminishing even under system separations.
As many anticipated, this signals a major shift in battery revenue streams. Wholesale market arbitrage and tolling agreements are becoming more important, yet they also bring new complexities arising from wholesale price volatility and the intricacies of real-time market optimisation and trading.
If you’d like to learn how OptiGrid is helping clients maximise returns on their battery projects, please get in touch.
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