On Sunday, January 14, something very unusual happened.
The Australian Energy Market Operator called – as it often does – for generators in South Australia to provide a modest amount of network services known as FCAS (frequency control and ancillary services).
This time, though, the market price did NOT go into orbit, and the credit must go to the newly installed Tesla big battery and the neighbouring Hornsdale wind farm.
The call for 35MW of FCAS – usually made when there is planned maintenance or a system fault on the interconnector between Victoria and South Australia – has become a running joke in the electricity market, and a costly one for consumers.
The big gas generators – even though they have 10 times more capacity than is required – have systematically rorted the situation, sometimes charging up to $7 million a day for a service that normally comes at one-tenth of the price.
(You can read our reports on how they do it here, here and here, and for a more detailed explanation at the bottom of this story).
The difference in January was that there is a new player in the market: the Tesla big battery, officially known as the Hornsdale Power Reserve, which bid into the market to ensure that prices stayed reasonable, as we predicted last year.
Rather than jumping up to prices of around $11,500 and $14,000/MW, the bidding of the Tesla big battery – and, in a major new development, the adjoining Hornsdale wind farm – helped (after an initial spike) to keep them at around $270/MW.
This saved several million dollars in FCAS charges (which are paid by other generators and big energy users) in a single day.
And that’s not the only impact. According to state government’s advisor, Frontier Economics, the average price of FCAS fell by around 75 per cent in December from the same month the previous year. Market players are delighted, and consumers should be too, because they will ultimately benefit.
Ed McManus, the CEO of Meridian Australia and Powershop Australia, which operates the Mt Millar wind farm in South Australia, says the Tesla big battery is already having a “phenomenal” impact.
“If you look at FCAS … the costs traditionally in South Australia have been high …. and our costs in the last couple of years have gone from low five-figures annually to low six-figures annually. It’s a hell of a jump,” McManus said in this week’s RenewEconomy’s Energy Insiders podcast.
“That plays into the thinking of new players looking to come into South Australia to challenge the incumbents. FCAS charges are on their minds.
“It’s a little early to tell, but it looks like from preliminary data looks that the Tesla big battery is having an impact on FCAS costs, bringing them down … that is a very, very significant development for generation investment and generation competition in South Australia.
“The South Australian government deserves a big pat on the back …. they have received a fair bit of flack – people saying if the power goes out, the battery can only power state for 5 minutes – but that is kind of irrelevant.
“The battery is there to do other things … and it looks like it has been phenomenally successful in doing that.”
There is no doubt that actions of the Tesla big battery in the FCAS market will please the government, which signed a contract with Tesla to address just this issue. (And may be able to repeat the dose with the newly announced 250MW “virtual power plant” also to be built by Tesla.
If it can keep a lid on FCAS prices like it did in January, then it will likely pay back the cost of the battery in a single year from this service alone, let alone the value of its trading in the wholesale market, and the value of its emergency back-up capabilities.
It’s just another string in the bow of the Tesla big battery, following its devastatingly fast response to trips of major coal-fired generators (it was in the market again on Saturday night after Vales Point in NSW tripped), its ability to go to capacity from a standing start in milliseconds, and its smoothing of wind output and trading in the wholesale market.
These graphs below explain what has been happening in the FCAS market in the past year, and what happened on January 14.
Let’s take September 14 as exhibit A. AEMO called for 35MW of FCAS for a well-advertised maintenance schedule, but the four big operators – AGL, Origin, and Engie – could only find 30MW of “low priced” capacity, despite having more than 400MW available. So the prices went into orbit.
All told, according to the AER report, the bidding patterns cost around $7 million that day (See chart below for comparison with a normal day’s work). Sometimes the shortfall has been just 1MW or 2MW, but it sends the prices up nevertheless. The generators profit from the scarcity they create.
This practice has been systematic for more than a year, and there has been at least 10 such events in the past 12 months.
In January, however, after an initial spike, the Tesla big battery bid in at around $270/MWh and that’s where the market stayed. It probably saved around $3 million or more.
What’s particularly interesting about this is that it was not just the battery bidding in, it was also the neighbouring Hornsdale wind farm – also owned and operated by Neoen – that bid 10MW of FCAS into market as it continues its trials sponsored by ARENA and AEMO. This is a huge development.
There are separate markets for lower regulation, but for ease of purpose, we have chosen to focus on the raise regulation market only. But the results are the same for both.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
There are separate markets for lower regulation, but for ease of purpose, we have chosen to focus on the raise regulation market only. But the results are the same for both.
