Latest research from Cornwall Insight Australia shows that solar farms are responsible for paying somewhere between 10%-20% of total regulation FCAS costs in any given month (see Figure 1).
This is disproportionate to solar’s energy generation in the NEM, which in FY20, was only ~3%. In contrast, wind is far more proportionate with cumulative FCAS causer pays* factors accounting for ~10% of FCAS regulation costs. Wind provided ~9% of total generation for the NEM in FY20.
In fact, calculations by Cornwall Insight Australia highlights that FCAS causer pays costs solar farm owners, conservatively, around $2,368/MW/yr**, which is ~$1.55/MWh. In 2019 this was closer to $5.5/MWh. It should be noted that not all regions are created equal, with solar farms in Queensland in FY20 on average having higher causer pays factors than other states.
Ben Cerini, Principal Consultant at Cornwall Insight Australia, said:
“Since 2018, regulation FCAS costs have fluctuated between $10-$40mn a quarter. Q220 was a relatively small quarter by recent comparisons at $15mn with the last three quarters before that more than $35mn a quarter.
“Renewable energy generators have historically turned off to avoid negative pricing. However, a new operational consideration for renewables is the liability that high regulation FCAS prices pose to the profitability of current and future renewable energy projects.
“As wholesale prices have fallen, potential power purchase tenures have shortened, and loss factors have fluctuated. Developers and investors are aware of any increased risk to project costs. FCAS liabilities are now firmly on the due diligence agenda as new projects look to forecast the future cost of regulation causer pays.”
About the Cornwall Insight Group
Cornwall Insight is the pre-eminent provider of research, analysis, consulting and training to businesses and stakeholders engaged in the Australian, Great British and Irish energy markets. To support our customers, we leverage a powerful combination of analytical capability, a detailed appreciation of regulation codes and policy frameworks, and a practical understanding of how markets function.
About the FCAS price forecast
Cornwall Insight Australia is releasing an FCAS price forecast in September 2020. If you would like to know more about this product, please contact b.cerini@cornwall-insight.com.au for more information.
