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Fast Frequency Response is coming to the NEM

The Australian Energy Market Commission (AEMC) has recently published a draft determination to introduce Fast Frequency Response (FFR) into Australia’s National Electricity Market (NEM). This is a significant market reform that recognises that the grid is fundamentally changing and that there are new technologies (such as batteries) that can provide valuable services in this new paradigm.

FFR is proposed to commence three years after the final rule is made. However, there is scope for this to be brought forward. Stakeholders can comment on the draft rule until 3 June 2021.

Eight FCAS markets currently help correct frequency deviations

The NEM is designed to operate within a narrow band around 50 hertz. The demand and supply of electricity must be kept in precise balance at all times to maintain this frequency and keep the grid stable. If demand starts to increase more than supply (or vice versa), it can destablise the grid and threaten system security.

There are currently eight markets for Frequency Control Ancillary Services (FCAS), which help to correct any frequency deviations. These eight markets are grouped into two categories: contingency and regulation services.

Regulation services are used to correct minor frequency deviations. In contrast, contingency services help correct frequency after a major event such as the loss of a generator or large transmission element. Under current market rules, the fastest contingency FCAS markets require a response time of 6 seconds.

Fast frequency response markets can help integrate more renewables and battery storage

The AEMC is proposing to introduce a new type of service called Fast Frequency Response, which would have a response time of two seconds or less. Batteries are by far the fastest responding assets in the grid, and are capable of responding in hundreds of milliseconds. This very fast response will become increasingly important as the uptake of wind and solar grows. This is because a grid dominated by variable renewables will inherently be a low inertia system.

Traditional generators such as coal, gas and hydro have a spinning mass, which is able to provide inertia. Inertia slows down the rate at which frequency changes immediately after a disturbance to the grid. When we have less inertia in the grid, it is going to be extremely important to have very fast responding assets that can increase or decrease power quickly to avoid large frequency deviations that could threaten system security.

As mentioned, batteries are already technically capable of providing fast frequency response. However, because there has been no market for FFR, batteries have not been compensated for this valuable service (outside grants and trials). By creating a market, and hence a compensation mechanism, we will be one step closer to properly valuing the full benefit that batteries can provide. As more of the battery value stack gets monetised, this should strengthen the investment case for battery storage.

For an in-depth understanding of how batteries operate and earn revenue in energy and FCAS markets, sign up to the new Energy Synapse platform. Register for a demo here.

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
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Hornsdale Power Reserve earns record revenue in September 2019

The world’s biggest lithium-ion battery, the 100 MW/129 MWh Hornsdale Power Reserve in South Australia, has just earned its biggest monthly revenue from wholesale markets.

The ‘Tesla big battery’ as it is commonly known, was famously brokered via a deal on Twitter and has been operating in Australia’s National Electricity Market (NEM) since late 2017. We recently published independent analysis, which provides a deep dive into the operation, merchant revenue, and bidding strategies of the Hornsdale Power Reserve from January 2018 to September 2019. In this article, we look at just one of the many insights from the report.

Our analysis shows that the Hornsdale battery earned approximately $3.4 million from wholesale markets in September 2019 (see chart below). This is the highest monthly revenue that the battery has achieved. Note that this is inclusive of the cost of charging the battery. However, it does not include non-market revenue streams (such as the contract it has with the South Australian government), FCAS payments under the causer pays methodology, or any other factors which are private to the operator.

The overwhelming majority of revenue in September came from providing frequency control ancillary services (FCAS). Contingency services, which correct major frequency deviations in the grid, accounted for the highest share of revenue (55%). This was due to a strong rebound in contingency FCAS prices. In September 2019, the Australian Energy Market Operator (AEMO) made changes to how it calculates FCAS requirements. This has resulted in a higher volume of contingency FCAS being procured, which has contributed to the upward pressure on prices.

Operating batteries has a learning curve

At a high level, the revenue that a battery can earn each month and how this is split across various markets, depends on two factors:

1. Prevailing market conditions; and

2. The strength of the battery’s trading strategy.

The Hornsdale battery may have earned the single highest monthly revenue in September, but it also missed significant opportunities throughout the month. In our analysis, we compare the actual operation of the Hornsdale Power Reserve with our optimised operation model. This comparison shows that there was potentially more than $1.1 million of additional revenue available in the market in September. This highlights the complexities of operating batteries under real world conditions and uncertainties.

Batteries are unlike any other asset in the NEM. A generator, such as a coal or gas plant, can theoretically keep producing electricity as long as the fuel continues to be supplied. In contrast, a battery has a limited capacity to charge or discharge energy at any point in time. As a result, previous charge/discharge decisions can have a big impact on future revenue. There is still much to learn about how to operate batteries in the most profitable way.

Order the full report here

Author: Marija Petkovic, Founder & Managing Director of Energy Synapse
Follow Marija on LinkedIn | Twitter