Capacity Costs are on the Rise

In competitive electric markets such as New England, New York and PJM, the Independent System Operator is responsible for paying generators for their capacity to perform during critical hours. Simply, electric generators are paid to guarantee that there will be enough electric supply available to meet forecasted demand requirements into the future. These costs are pre-determined using competitive auctions. Due to planned electricity generation plant closures and growing demands, future capacity costs are increasing. While the actual cost of the capacity is determined system-wide, your individual capacity tag is established by your electricity demand when the system is peaking . A consumer’s capacity tag is tied to the number of capacity units that the consumer will require on the peak demand day of the year.

By effectively predicting the potential peak day(s), consumers can reduce their electricity usage to lower their capacity tag for the next capacity year. A reduction in the capacity tag will help mitigate the increase in the capacity costs going forward.

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Article: Capacity increases in PJM market

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Key Points:

  • Increasing capacity rates are becoming a real issue as we move through 2016 and beyond
  • Capacity costs are indisputable charges that have already been approved by the ISO
  • What you use this year on the peak day(s) will become your future capacity assignment
  • Your capacity assignment will impact your energy costs for the next capacity year

 

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