Ancillary services market redesign in Asia Pacific to drive grid-scale battery uptake

Grid operations require a constant balance between demand and supply to maintain stable and desired frequency and voltage levels. Large and continued frequency deviations in the system could damage the system physically and create blackouts on the grid.

Power systems across the world have a separate ancillary services market that procures frequency control and other ancillary services to match the demand and supply on the system. Frequency control and ancillary services (FCAS) market procures fast response from generators, storage and demand response units to manage frequency deviations on the grid.

Utility-scale battery storage systems (BESS) are equipped to deliver a faster response rate to grid signals compared to conventional coal and gas generators. BESS could ramp up or ramp down its capacity from 0% to 100% in matter of seconds and can absorb power from the grid unlike thermal generators.

In established storage markets such as the UK, California Independent System Operator (CAISO), Electric Reliability Council of Texas (ERCOT), and Australia’s national electricity market (NEM), utility-scale battery storage projects have garnered a significant share of their revenue by providing fast response to frequency fluctuations and supply-demand imbalances through ancillary services markets.

However, in most APAC markets, these services are procured through administrative routes of monthly or annual contracts. This hinders grid batteries from competitively earning revenues in the ancillary services market. To spur the growth of grid-scale batteries in APAC, a more sophisticated daily or weekly rolling ancillary services market structure is essential.

Australia has one of the most matured FCAS markets globally. It has 10 FCAS services split across regulation and contingency response services procured in a day-ahead spot market. Regulation services are procured to correct frequency deviations occurring due to small supply-demand imbalances and contingency services are called upon to respond to generator or transmission line failures due to weather events or technical faults.

Last year, grid-scale batteries made up 40% to 50% of the FCAS market in Australia. The FCAS generators (including storage and demand response units) that participate in the market are paid to be available and are also compensated for the energy discharge or absorption. In October 2023, Australia’s NEM introduced ‘very fast frequency response services’ that require the participants to respond with one second. So far, grid-scale batteries and virtual power plants have entirely captured the very fast response service.

Other markets in the region have realised the need for sophistication in procuring ancillary services and are now transitioning to day-ahead markets. For example, Taiwan initiated an energy trading platform in 2021 for ancillary services. Japan will have a day-ahead and week-ahead ancillary services market starting in 2024.

Some provincial markets in China already have a functional day-ahead market and many of those that don’t, now have draft resolutions and test runs for a day-ahead ancillary service market.

For BESS assets, participation in different revenue streams, including energy market, capacity market and FCAS, largely depends on the competition faced from other assets in the market and therefore requires a dynamic revenue optimisation strategy.

Ancillary services are an important revenue stream for batteries, but the opportunities are limited and are at a risk of saturation in the long-term. The exact implementation of ancillary operational requirements and total set of products can shift over time and change how competitive specific storage projects will be through their lifetime.

However, these markets are key to kickstarting the uptake of grid-scale batteries in nascent markets within APAC, and will in turn eventually support the overall energy transition.

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