Hundreds of megawatts of new large-scale battery storage in Australia will increase competition and put downward pressure on the costs of ancillary services to help balance the grid.
The frequency control ancillary services (FCAS) market is administered by the Australian Energy Market Operator (AEMO). It is open to a broad range of energy technologies and has increasingly become an opportunity for battery energy storage systems (BESS) to earn revenues by helping maintain the electricity network’s optimum operating frequency.
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In May, quarterly figures released by AEMO highlighted that in Q1 2022, for the first time ever, BESS was the technology type providing the largest percentage of frequency regulation in the market. Across the eight different FCAS markets, batteries took a 31% share, 10% ahead of either black coal or hydroelectric, the next two biggest contributors.
According to new analysis by Cornwall Insight Australia, 736MW of new BESS is expected to be installed and connected to the National Electricity Market (NEM) by the end of 2023, which will lead to greater competition in the market and therefore lower prices.
This will likely be most felt in the Raise Regulation market, which is used to correct a minor drop in frequency, with Cornwall Insight Australia forecasting prices will drop to an average of AU$10/MW/hr (US$6.27/MW/hr) by the middle of this decade, from about AU$15/MW/hr today.
The role of battery storage in the market is predicted to continue growing dramatically, with about half of all FCAS services procured (between 40% and 55%) in the 2024 financial year to come from BESS.
Forecasting further out for the next couple of decades, by the early 2040s, between 70% and 90% of Raise Regulation and Lower Contingency – the latter accounting for three markets where assets must respond in a range between 6 seconds and 5 minutes to prevent a major rise in frequency following a contingency event – will be provided by BESS.
The trend is likely to be similar in the other markets as well, but Cornwall Insight’s expectation was that it would be most pronounced in those two ancillary services categories.
Pledges and policy put market in line for at least 4,300MW of new BESS by 2030
The development of the overall market for battery storage in Australia is already accelerating, and over the next few years to 2030, state policy strategies such as the New South Wales Electricity Infrastructure Roadmap will lead to the addition of about 4,300MW of new grid storage, the consultancy group said.
This will in turn aid the continued lowering of prices and ultimately costs to the system and bill payers. If more ambitious policies are adopted – two examples being the state of Victoria’s proposed 6.3GW by 2035 energy storage deployment target and the government of Queensland’s Energy Storage Strategy being prepared for publication – there could be even greater changes in market dynamics.
Some, such as the national Clean Energy Council industry body and Victorian Energy Policy Centre at Victoria University have proposed the adoption of a nationwide energy storage target, along the lines of Renewable Energy Targets that have proven successful.
In an article published in our quarterly journal PV Tech Power earlier this year, Cornwall Insight Australia managing consultant Ben Cerini noted that not only are batteries good for the FCAS market, but the FCAS market is good for batteries too.
About 80% to 90% of grid-scale battery asset revenues in Australia typically come from FCAS, Cerini said, with only the remainder from energy trading.
Today, other technologies playing in the FCAS market along with batteries, black coal and hydro albeit to a much lesser extent are combined cycle gas turbines (CCGT), brown coal, demand side response, open cycle gas turbines (OCGT) and liquid fuel.
Batteries will continue eroding coal’s market position, but that competitive dynamic all but disappears as the 21st Century progresses, with coal power plants earmarked for retirement with hardly any expected to be in operation by the 2030s.