Small potatoes?

Following the announcement of the National Energy Guarantee, the sector has been awash with speculation about the specifics of this major new policy. Doubtless the NEG will continue to be the centre of much focus for weeks and months to come, and so we shall turn to this in future issues.

Instead, this week we respond to a request from one of our readers to take a look at frequency control ancillary services (FCAS) costs. FCAS costs have often been dismissed as ‘small potatoes’ in the scheme of electricity supply, but have risen substantially in recent years. We examine this trend in this week’s charts.

Chart 1: Total FCAS costs by year

There are 8 FCAS services in the NEM:

  • regulation raise and lower;
  • 6 second raise and lower;
  • 60 second raise and lower; and
  • 5 minute raise and lower.

Chart 1 shows the total payments for FCAS across the entire NEM on an annual basis from 2010 to 2017 YTD. The left panel shows total payments for lower services, and the right panel shows total payments for raise services.

Between 2010 and 2014, total FCAS payments were $145.4 million. In 2017, total FCAS costs are already $182.2 million.

Chart 1: FCAS costs have increased markedly in recent years

Total FCAS costs for lower and raise services by year, 2010 to 2017 YTD.

Chart 2: Total FCAS costs by service

So which services are costing us the most?

Chart 2 shows a breakdown of annual FCAS costs by service. By way of explanation:

  • The top panel shows each of the lower services, and the bottom panel shows each of the raise services.
  • We have labelled each bar with the average compound annual growth rate relative to 2010. For example, the total cost of regulation lower services has grown at an average rate of 60 per cent per year between 2010 and 2017.

Although high costs for regulation FCAS have attracted a lot of attention in the last couple of years, you can see that the cost of other raise services has also increased markedly.

Chart 2: Cost of all raise services has increased markedly over the last few years

Total FCAS lower and raise payments by year and service, 2010 to 2017 YTD. Labels show average annual compound growth rate relative to 2010.

My two cents:

  • Charts 1 and 2 show that FCAS services are no longer ‘small potatoes’ – a hundred million here, a hundred million there and pretty soon you’re talking real money.
  • If FCAS is costing more, then it deserves more attention from everyone in the industry – myself included!

As always, all comments are most welcome.