If you’ve ever listened to a developer pitch you the business case for a battery, you’ve almost definitely heard the term ‘value stack’. The value stack is often presented as a complicated and somewhat arcane thing, but it’s rather simple – the business case doesn’t stack up without multiple sources of revenue.
For batteries in particular, one of the key revenues in the ‘value stack’ has been from participating in the Frequency Control Ancillary Service (FCAS) markets. But what exactly are these markets? And why have FCAS prices collapsed recently? And in the absence of these revenue streams, how will batteries make money?
If FCAS is an unfamiliar acronym to you, the following is a very brief introduction to help interpreting this article.
FCAS are a series of 10 individual markets used to manage the frequency of the grid. A very simplistic and somewhat abstracted way to think about the role of these services is as serving three separate functions:
Contingency Raise: A series of four individual markets which inject power into the grid when the system frequency suddenly falls significantly. The four markets – ‘Very Fast’, ‘Fast’, ‘Slow’ and ‘Delayed’ – are differentiated by the speed at which units are able to respond.
Contingency Lower: A series of four individual markets which remove power from the grid when the system frequency suddenly rises significantly. The four markets – ‘Very Fast’, ‘Fast’, ‘Slow’ and ‘Delayed’ – are differentiated by the speed at which units are able to respond.
Regulation: Two markets (‘Raise’ and ‘Lower’) which are used to continuously maintain the frequency within a tight operating band around the nominal system frequency of 50 Hz.
The names of these markets are:
Very Fast Raise Contingency FCAS (one second)
Fast Raise Contingency FCAS (six seconds)
Slow Raise Contingency FCAS (60 seconds)
Delayed Raise Contingency FCAS (five minutes)
Very Fast Lower Contingency FCAS (one second)
Fast Lower Contingency FCAS (six seconds)
Slow Lower Contingency FCAS (60 seconds)
Delayed Lower Contingency FCAS (five minutes)
Raise Regulation FCAS
Lower Regulation FCAS
Some further points are worth noting:
In relation to point 4 above, all of the charts used in this article are shown for New South Wales prices, which are generally the most stable.
Prices across all FCAS markets, but particularly the Raise Contingency services stepped up during 2016 and remained elevated until 2024. In the last two years, however, prices have collapsed to levels not seen since 2015.
This trend is starkest in the Raise Contingency services. The chart below shows the monthly average price for each of the Raise Contingency FCAS markets in NSW (note the varying y-axis scales).
There are still periods of short duration (minutes to one or two hours) volatility where the price of one or more markets rises to the market price cap of over $20,000/MW/h, but the macro trend is clear – down.
In order to assess the collapse there are two key datasets to look at: FCAS enablements (how much procured from the market) and the total capability of the fleet.
The chart below shows the total quantity of enablement for each Raise Contingency FCAS market on a monthly basis. The bars are coloured by the fuel type (note the varying y-axis scales).
Some key observations:
We can see the rise of utility scale storage, demand response and Virtual Power Plants (VPPs – see ‘electricity fuel type’) over the last decade. FCAS revenues are often significant to the business cases of these technologies.
The Very Fast (one second) market is dominated by two technology types – large batteries and demand response/VPPs. Very few conventional units like coal, gas or hydro are capable of providing this response from a technical perspective.
In 2019, the Australian Energy Market Operator (AEMO) made changes to how ‘load relief’ is calculated. This had the effect of significantly increasing the volume of FCAS procured in the Fast (six second) and Slow (60 second) markets (for both Raise and Lower services). These changes to the amount of FCAS procured helped sustain the elevated post-2016 FCAS prices.
But a key takeaway from this chart is the shallowness of these markets.
The y-axis is presented in MWh, which translates to around 500 MW of Fast and Slow, and 400 MW of Delayed Contingency Raise FCAS procured in a given dispatch interval.
Now let’s look at the total registered quantity in each of the Raise Contingency FCAS markets over the last decade or so. (Note the varying y-axis scales).
Now, there are plenty of caveats to this, including the fact that a lot of units have much larger FCAS capabilities registered than they would ever actually deliver. But the overarching narrative is clear – the FCAS markets are incredibly shallow, and there are literally hundreds of units capable of providing that capacity.
The second key takeaway is that this chart provides a clear explanation for why FCAS prices have collapsed in the last two years – several gigawatts of new FCAS capacity has entered the system with the rise of grid scale batteries. This is the most rapid ramp up of units registered for FCAS since the beginning of the markets in 2001.
Before we move in, if you’re curious about the large step changes in the chart:
In October 2023 there were very significant drops in registered FCAS quantities – this was due to changed registration requirements in the Market Ancillary Service Specification version 8.1 which removed the so-called ‘multiplier effect’.
The large steps up in the Slow and Delayed markets in May 2025 was due to significant increases in the registered capacity of the existing Tumut Hydroelectric Power Station, part of the Snowy Mountains Scheme.
So, the collapse of the FCAS market pricing is a direct consequence of the huge wave of new assets entering these shallow markets and providing these services at very low cost. With the enormous pipeline of utility scale storage projects set to come online over the next decade, it’s clear that this is not a temporary trend.
If FCAS markets have been important to the economics of utility scale storage, demand response and VPPs, how will these types of assets work in the future?
The first point is to note that the capital costs of batteries have declined significantly since the first large scale battery entered the NEM in 2017 (Hornsdale Power Reserve).
As the below chart from Modo Energy shows, actual project costs on a per MWh basis have roughly halved over the last decade, and are set to continue to decline in the coming decade.
These declining costs have been driven by technical improvements in the battery chemistry and increased efficiencies with manufacturing scale. These same trends are also present in small scale batteries, like those utilised in VPPs.
The second point is that the dynamics of the wholesale energy market have structurally changed over the last decade. Declining prices (including negative prices) and elevated (but not necessarily ‘volatile’) evening prices are yielding larger (and longer) intraday spreads. This arbitrage – charge at low prices and sell into high prices – is the core business case for most modern battery projects. And as the economics of arbitrage has improved, the reliance on other sources of revenue to make the business case work has abated somewhat.
The final point is that frequency control is only one aspect of ensuring a stable power system. Other issues including inertia, rapid ramping and low-demand system stability are emerging system challenges which batteries (and other technologies) may be well placed to address. There are no existing markets for these services, but they may well develop into the future.
In the interim, AEMO is seeking to develop out-of-market contracting structures for some of these services under their Transitional Services Framework. These present new revenue opportunities which may well become part of the business cases for future assets.