- The terms are incorrectly used interchangeably to confuse policy discussions. APA believes that using the correct terminology around total capability, average performance, and expected delivery will help inform policy discussions and prevent policy changes that cost consumers.
Some parties involved in energy policy discussions are deliberately confusing participants by talking about “generation capacity” instead of “capacity factor”, the measure of how much energy an electric power generator produces on average over time. Capacity factors vary widely among power generation types and they are a part of the calculations that investors make when determining their investments in specific resources.
The term “generation capacity” or “nameplate capacity” is one way to measure the growth of energy resources. Capacity is the maximum power output a generator can produce under at full power. In the same way that a car’s 350 hp engine doesn’t use 100% of its capacity all of the time, using nameplate capacity in market design discussions is misleading and ignores the reality that every generation type has a “capacity factor” that is less than 100%, each generator plays a contributing role, and each is rewarded financially for the value they bring, including availability and performance.
“Capacity factor”, or net capacity, is the appropriate term to inform policy discussions as it is the ratio between what a generation unit is capable of generating at maximum output versus the unit’s actual output over a period of time. These two variables can be significantly different because most generators do not operate at full capacity all the time. Output may vary based on maintenance issues, weather conditions such as wind and sun availability, fuel costs, or instructions from the electric power grid operator.
The conversation is further deliberately confused when performance during ERCOT’s “Winter Weather Event” in February 2021 is compared to capacity or capacity factor. The most appropriate measure of performance for resources during relative to “Forecasted Capacity”, a measure based on data from Moody’s economic data and published in ERCOT’s Seasonal Assessment of Resource Adequacy (SARA). Grid operators plan their performance expectations based on past performance (capacity factors) and generation additions (capacity). The performance of certain generation resources can vxary seasonally, and while this is evident in wind and solar forecasting, it occurs in other resources where fuel availability, maintenance, water temperature in cooling systems, and other factors can affect their seasonal performance. (http://www.ercot.com/content/wcm/lists/197378/SARA-FinalWinter2020-2021.pdf)
Despite widely varied capacity factors, different generation resources complement one another to deliver power when needed. Our power grid brings them together as each generation source brings unique and valuable attributes to benefit consumers: wind, solar, and hydropower offer zero emissions and extremely low costs to consumers thanks to their lack of fuel needed to operate; cleaner-burning natural gas offers fast-ramping flexibility, coal purports to offer “run through anything” base reliability, and nuclear offering a very high capacity factor and reliability.
Knowing the difference between capacity and capacity factor or “expected capacity” is essential and it’s important to recognize that a lower “capacity factor” is not a failure of any generation source, it is a mechanical reality and one that investors, grid operators, and utilities understand well.