Capacity in the electric market refers to the capability to produce energy to meet your “peak” electrical use during a specific period. There must be enough power to maintain grid reliability during periods of peak demand, regardless of when it occurs. If there is an insufficient amount of electricity generated to meet the demand, we lose power.
In order to ensure that there is sufficient capacity to meet the anticipated demand, every utility customer pays a capacity charge. In prior years, the capacity charge was insignificant and did not have much impact on electric pricing. However, the capacity charge has increased to a point where it now accounts for a substantial portion of the total energy cost.
Capacity charges are influenced by electricity generating resources such as nuclear, coal, gas, wind, etc. Capacity has increased over time because of increased demand on the grid and reduced supply from closures of electric generation facilities. When an electricity generating facility such as a coal-fired plant closes it reduces the amount of capacity. Antiquated transmission systems that need to be updated and expanded are also reasons for the increased cost of capacity in certain areas.
Below is a graph that shows NYISO Zone B electricity pricing and the various components included. This visual will show you just how much capacity has increased relative to the other pricing components. Check back in the next two weeks for a follow up blog where we will talk about the ways your business can mitigate these increased costs.