Generator exposure to regulation costs under FPP

In our first article looking at the FPP winners and losers by fuel type, we identified batteries and coal assets as the biggest winners on a ‘net settlement’ basis.

• In our second article, we looked at the top 10 batteries over 87 days of NFO data for the upcoming FPP changes.
• In this third article we delve further.

The introduction of Frequency Performance Payments (FPP) fundamentally changes who pays and how much they pay towards covering the cost of raise and lower regulation FCAS in the NEM. FPP is currently in a Non-Financial Operation mode, but come 8 June 2025 financial operations will commence, and the Causer Pays process will be replaced by FPP as the basis for determining the settlement of regulation FCAS cost recovery (in addition to the incentive and penalty payments that will be introduced by FPP).

FPP splits the cost recovery of regulation FCAS into two components:

1. Recovery of used regulation,
2. Recovery of unused regulation.

The usage of regulation FCAS is determined by AEMO as the proportion of enabled regulation FCAS that contributes to reducing the deviation in frequency. ETSI has analysed the NFO data, and the proportion of used to unused regulation is typically 35%:65%. This is reflected both in the Usage data and the settlement values for the used and unused regulation components published by AEMO.

Under FPP the recovery of used regulation is based on negative contribution factors calculated for each generator and for each binding regulation constraint. Essentially, the negative contribution factor for a generator can be thought of as the proportion of harmful deviations that the generator was responsible for within the dispatch interval. So in contrast to Causer Pays, this brings a real-time element wherein the performance within the dispatch interval is assessed to determine the recovery of used regulation FCAS.

Unused regulation makes up the majority of the total cost of regulation FCAS that needs to be recovered, as mentioned above. Under FPP the recovery of unused regulation is based on default contribution factors. The default contribution factors are calculated over a 1 week historic performance period and re-calculated once a week, and thus these reward sustained good performance and conversely penalise sustained poor performance.

Looking at the Raise Regulation constraint “F_TASCAP_RREG_0220” which happens to be the most frequent binding raise regulation constraint in the NEM, we can take a look at the default contribution factors that are assigned to generators, and hence understand their exposure to the unused regulation cost recovery component. The following table lists the top 10 generators with the poorest default contribution factors for the F_TASCAP_RREG_0220 constraint as at 6 March 2025 (note that the default contribution factors are re-calculated once per week).

Table 1 – top 10 generators with the poorest default contribution factors for the F_TASCAP_RREG_0220 constraint
(9 December 2024 to 6 March 2025)

Top 10 ‘worst’ generators for DCF are all VRE		Performance Measure (see Caveats below)
DUID	Region	Default contribution factor
STOCKYD1	VIC1	-0.01904401
WDGPH1	QLD1	-0.01556329
BLUEGSF1	QLD1	-0.01327787
MCINTYR1	QLD1	-0.01316021
WOOLGSF1	QLD1	-0.01286932
WELNSF1	NSW1	-0.01266738
STUBSF1	NSW1	-0.01182775
LIMOSF11	NSW1	-0.01146934
COLUMSF1	QLD1	-0.00977279
NEWENSF2	NSW1	-0.00945423

 

All of the top 10 generators with the poorest default contribution factors for the F_TASCAP_RREG_0220 constraint are either wind or solar generators. And this finding holds true for all regulation FCAS constraints – demonstrating the extent to which solar and wind farms will be exposed to unused regulation FCAS cost recovery. The default contribution factor is applied for the recovery of the unused regulation FCAS cost of the constraint irrespective of the state of the generator, so unfortunately for solar generators they will be liable for unused regulation cost recovery even at night when they are not producing any power.

The default contribution factors are easily interpretable with the value representing the percentage of unused regulation cost attributable to the constraint that will be recovered from the generator, i.e. 1.9% of the unused regulation cost of the F_TASCAP_RREG_0220 constraint will be recovered from Stockyard Hill wind farm in every dispatch interval that this constraint binds. If we were to annualise the NFO data, Stockyard Hill would be subject to $105,000+ annual cost just from unused regulation cost recovery from this single constraint (noting the caveats that apply when annualising, specifically that the cost of the binding constraint changes as the price of regulation changes, and that participant behaviour may change when FPP enters financial operation, and there may be seasonality and other impacts). This is before adding used regulation cost recovery, and all the other raise regulation constraints, and of course repeating for lower regulation. And then adding the net settlement from the incentive and penalty payment component of FPP.

ETSI can help you better understand FPP. If you’re worried about how FPP will affect your assets, and want to know what you should be doing before financial operation begins on 8 June 2025, please get in touch. You can reach us by leaving a message below this article or emailing us at enquiries@etsi.energy

 

 

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