Grid scale batteries achieve record net revenues in September quarter

Australia’s growing fleet of grid-scale batteries achieved record revenues in the September quarter, driven by the expanding frequency and ancillary markets, increased arbitrage and the lowest cost of charging as spot prices fell regularly into negative territory.

The assessment by the Australian Energy Market Operator, in its latest Quarterly Energy Dynamics report, shows that total net revenue (after the cost of charging) was $12 million, the highest since the first big battery, the so-called Tesla big battery at the Hornsdale Power Reserve in South Australia, entered the market in late 2017.

The biggest driver of the increased revenue was the FCAS market, which in turn was driven by greater requirements imposed on the market by AEMO, which affected the “contingency FCAS market” and drove prices higher.

There was also another failure of the Basslink connection between Tasmania and Victoria,  which added to need of more “regulation FCAS” on the mainland and also drove prices higher.

AEMO says FCAS revenues rose by $4 million, and this also reflected the entry of the market of the two batteries in Victoria – at Gannawarra and Ballarat.

Indeed, it was interesting that the Hornsdale battery – the first and still the dominant player in the market – only slightly increased its revenues over the quarter, according to its results released by its owner Neoen on Tuesday night, which reported revenues for the first nine months were just 1 per cent ahead of the same period a year earlier.

The AEMO report also noted that the two Victoria batteries were playing a greater role in the spot market, leading to increased revenues of $0.6 million, and the cost of energy had fallen due to the regular falls to negative prices or very low prices in South Australia.

Pumped hydro facilities were also more active, taking advantage of the lower spot prices and volatility in markets such as Queensland, which allowed them to increase their “arbitrage” – the difference between the purchase price and the selling price – to $82/MWh from $67/MWh.

Even so, the Wivenhoe pumped hydro facility in Queensland only operated 18 per cent of the time that prices went negative, which AEMO attributed at least partly to the commercial interest of their then owners, the coal-dominated CS Energy. Wivenhoe is now owned and operated by the newly formed Cleanco and is expected to play more often in the market.

Both batteries and pumped hydro increased their share of the FCAS market, with coal plants being the biggest loser. Indeed, there is some concern that some coal plants have effectively given up on the FCAS market, a move that is resulting in some controversial proposals to reframe the markets (which we will come to at another time).

Batteries secured 20 per cent of the $60 million FCAS market in the quarter, and pumped hydro 20 per cent. Demand response also played a major role, and the first virtual power plant (operated by Energy Locals) also entered the market in September, a trend that AEMO expects will increase.