This is the last of the foundation Chapters describing a little discussed but nevertheless important part of the NEM system – the role of Frequency Control Ancillary Services to Hydro Tasmania and its revenues. Tomorrow’s post will use the prior information and knowledge to have a meaningful look at Hydro’s Profit and Loss statement. Chapters 10-13 will then focus on the critical issue of Hydro Tasmania’s financial position.
I thank John Lawrence for his assistance in preparing this information, his attention to detail and research over many years as we have worked together to better understand one of the most complex areas that impact our state, economically and functionally.
Glossary of acronyms used in this chapter
APA – Owner of Basslink
FCAS – Frequency Control Ancillary Services: Markets that pay generators or batteries to help stabilise system frequency.
NEM – National Electricity Market: A collection of five separate regional markets linked by interconnectors.
Chapter 9: FCAS – Useful, Modest, and Now Mostly Contractual
Hydro’s fast machines once gave it an edge in FCAS. Basslink’s regulatory shift has turned that edge into a small, predictable contract payment – and Marinus will erode it further.
For years, Frequency Control Ancillary Services (FCAS) were one of Hydro Tasmania’s quiet strengths. Hydro’s turbines were fast, flexible, and capable of stabilising the system in ways few mainland generators could match. FCAS never made headlines, and it never shaped the state budget, but it provided a useful buffer: a little extra revenue when the market tightened, a little protection when prices spiked, a little smoothing when energy margins were thin.
But FCAS was never a pillar of Hydro’s financial model. It was a side stream – helpful, not transformative. And now, even that modest advantage is fading.
Before 1 July 2025 – FCAS helped, but it wasn’t a big help
In the pre‑regulation era, Tasmania was often “FCAS short”. Basslink’s technical limits meant the island sometimes had to source FCAS locally, and when constraints tightened, prices could jump sharply. Hydro’s fast machines were well placed to respond.
In those moments, Hydro could earn opportunistic FCAS revenue. But even then:
- FCAS revenue was small compared to energy revenue
- FCAS was tiny compared to IRRevenues
- FCAS was volatile, unpredictable, and dependent on rare scarcity events
It smoothed earnings, but it never defined Hydro’s financial position. FCAS was a tactical advantage, not a strategic one.
After 1 July 2025 – FCAS becomes contractual, not competitive
Everything changed when Basslink reverted to APA’s control.
Hydro and APA then entered a new FCAS‑related arrangement – disclosed in Note 21 of the 2024/25 Annual Report – which values the two‑year agreement at:
- $103 million financial asset
- $76 million financial liability
- Net value: $27 million over two years
- Equivalent to roughly $13-14 million per year
This marks a fundamental shift.
Hydro now receives a modest, predictable contracted FCAS‑related benefit.
It no longer depends on scarcity. It no longer depends on constraints. It no longer depends on Hydro’s operational edge.
It reflects Basslink’s new regulated role, not Hydro’s flexibility. Hydro’s FCAS advantage is now smaller, steadier, less unique and tied to a two‑year contract, not the market
The era of opportunistic FCAS revenue is over.
Looking ahead – Marinus will erode FCAS value further
Marinus will reshape FCAS even more dramatically than Basslink’s regulatory shift.
Marinus promises to double Tasmania’s interconnection, increase FCAS import/export capability, reduce local scarcity and expose Hydro to more competition from mainland batteries
And batteries matter. They are faster than hydro, cheaper to operate, and increasingly dominant in FCAS markets across the NEM.
The outcome is predictable: Marinus will make FCAS cheaper for the system – and less profitable for Hydro.
The $13-14 million per year from the Basslink contract is temporary. Once Marinus arrives, FCAS prices will converge even further toward mainland levels.
Hydro’s FCAS edge will shrink again. Add it to the list of other structural issues Hydro is facing:
- the permanent loss of IRRevenues
- $142 million in LGC losses
- rising debt
- higher transmission charges
- more competition in Victoria
- exposure from PPAs
Conclusion
FCAS once gave Hydro a quiet operational advantage – a niche strength that helped at the margins. Today, that advantage has been converted into a modest, temporary, contractual payment of around $13-14 million per year. Helpful, yes. Strategic, no.
Basslink’s regulatory shift has reshaped FCAS. Marinus will erode it further.
FCAS is no longer a differentiator. It is becoming a commodity service in a market where Hydro’s natural advantages are fading. Next, in Chapter 10, we turn to Hydro’s 2023/24 and 2024/25 underlying profit results – the point where all the threads from earlier chapters finally converge.