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When is capacity not capacity?

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Doug Houseman's picture
Visionary and innovator in the utility industry and grid modernization Burns & McDonnell

I have a broad background in utilities and energy. I worked for Capgemini in the Energy Practice for more than 15 years. During that time I rose to the position of CTO of the 12,000 person...

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  • Apr 24, 2019 5:07 pm GMT

For decades capacity and capacity reserve have been used to determine if enough generation exists to meet demand. While some de-rating of plants is done for conditions, basically the size of the facility has dominated the capacity rating.

A recent blog indicating one-third of global capacity was renewables got me to thinking – is raw facility size useful anymore? If a natural gas fired generator is denied fuel, do they have available capacity? At night does PV count? Does solar plus storage with a 4-hour battery count at 4 AM? On a stormy day does a wind farm count?

I am not arguing that capacity should only be made up of facilities with fuel on site.

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I am asking if the idea of capacity useful to answer the question: “can we get thru the winter season with the energy that we have available?”

This is a more complex question than capacity. Into this energy equation would go demand response (hours contracted times megawatts), the seasonal total output of each type of power plant based on contracted fuel or historical weather. Hydro would include water is in the reservoir.

This does not answer the question of meeting peak. The next step would be – At specific times can we meet demand?

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Rafael Herzberg's picture
Rafael Herzberg on Apr 24, 2019

You raised a very interesting question - that's for sure! 

Around the globe, a country's installed capacity (in GW of power generation) is about twice the maximum - physical - recorded demand.

This difference is originated by the sheer fact that each energy source has its own limitations - as you pointed out very well. 

The challenge is "dispatching" the power plants considering all the limitations so as to end up paying a "competitive" price AND making sure that all these limitations are considered. Cost merits per energy source for power production and its availablitity througout the year.

Just as an example. Should the independent system operator dispatch cheaper hydro power plants (using available water stored in the dams) or dispatch more costly thermal power plants to make sure that the water stored for the hydro power plants remain at a "safe" level even during the "dry" seasons? 

These questions are difficult to answer because we are considering avaliabliity of energy sources, their current and future prices among others.

This is why there is such a huge difference between recorded demand and required installed capacity. 

Rafael Herzberg's picture
Rafael Herzberg on Apr 24, 2019

Another comment: this fact (countries having twice the installed generating capacity as compared to the maximum physical recorded demand) points to an actual higher cost in terms of USD/MWh.

It means that amortization costs - at the end of the day - is higher than "just the single energy source in consideration".

Another way to look at this. Lets consider PV. Roughly speaking it ia a USD 1 000/instaçlled kW BUT therre should be a backup system (it may be the public grid, an energy storage package) which in turn has of course an associated cost.

This may be very well understood if we take into consideration cogeneration projects for industrial plants. Usually there is a backup contract signed with the local utility company so that if there is an emergency or a schedulled manitenance the grid becomes the power source automatically and smoothly (usually it is even syncronized with the grid). For a monthly price (designated in terms of demand charges and if actived there is a commodity fee in USD/MWh as well).

Bottom line: what really matters is the total package, Not only the single source in consideration!

Matt Chester's picture
Matt Chester on Apr 24, 2019

This question is definitely an important one, as boiling down capacity to an oversimplified single number absolutely undermines the grid's actual needs and can lead to errors in judgement-- false sense of security, not well enough planning, or worse that can leave people in serious danger. The current situation in Venezuela and the recent issues with the grid in Puerto Rico in response to hurricanes show how perilous it can be to a society that suddenly finds itself without sufficient energy due to poor planning and management. 

The truth is, as with many aspects of the industry, is that there's not going to be a single measure or figure we can use that will replace 'capacity' in a satisfactory way to answer the important questions you're asking. This issue exemplifies why we need smart and dedicated individuals in high positions to fully analyze the 'true' capacity, taking all your noted factors into account. 

I'm interested and excited to see what tangible strategies and ideas this community can come up with, though, in response to your post. Let's see where this can go!

Richard Brooks's picture
Richard Brooks on Apr 24, 2019

Capacity Markets that I'm familiar with contain several types of "Capacity Resources" that range from Large Nuclear and Fossil plants, to smaller generators of varying types (solar, wind, hydro, Biomass, etc), to Demand Response programs, to Batteries and even includes Energy Efficiency measures.

As Doug ponts out, the concept of capacity is directly related to meeting "peak" Demand. Peak Demand is no longer = total consumer consumption at a given point in time, now that many consumers have their own generating resources "behind the meter". It's also apparent that differences exist in how load forecasters are treating Behind-the-Meter PV, which causes distortions in the amount of "real capacity" that is needed from grid resources.

Today, load forecasters are grappling with difficult factors that raise uncertainty making estimates of "future" demand, extremely tenuous, which in turn raises the question about how to accurately plan for future capacity. Combine this with the fact that new capacity is coming online daily in large quantities from State programs, Green Buyers and Rooftop Solar, and it makes the load forecasting and capacity planning problems exponentially more difficult.

Today there is a "glut" of excess capacity on the system and consumers are paying for this excess capacity to sit idly on the system. By one estimate, New England's consumers paid nearly $1 Billion for excess capacity from 2016-2018 and continue to pay millions of dollars per year for excess capacity.

A new initiative is being discussed by some NAESB members to create a "capacity market standard" , using a strawman proposal called AOCE as a starting point, that aims to answer the questions you are asking and define an approach to properly value all types of "Resources" that can play a role in keeping the lights on nationwide.

Bob Meinetz's picture
Bob Meinetz on Apr 28, 2019

"Today there is a 'glut' of excess capacity on the system and consumers are paying for this excess capacity to sit idly on the system. By one estimate, New England's consumers paid nearly $1 Billion for excess capacity from 2016-2018 and continue to pay millions of dollars per year for excess capacity."

Thank you, Richard, for pointing out what should be obvious - considering renewable energy, demand-response, and efficiency as dispatchable energy "capacity" only creates voids in supply which are predictably filled by reliable, dirty gas generation.

That's just the way it works.

Michael Keller's picture
Michael Keller on Apr 24, 2019

I propose the use of the term “capability” which is a measure of the realistic generation ability over a given period, say a year, relative to the machine’s rating.

Capability = (average output at the grid switchyard the machine can provide)/(generator nameplate output).

For instance, on average a nuclear plant can be expected to generate at nameplate capacity say 90% of the time, station losses of say 10% with say a switch yard loss of 1%. Capability 79%.

A combined-cycle plant is more subject to air temperatures, but on average say can operate at nameplate capacity 90% of the time, station losses 5%, switchyard losses 1%. Capability 84%.

Wind turbine output is highly irregular and depends where the machine is located. However, for comparative purpose, assume relative nameplate output 30% of the time, station and switchyard losses of say 2%. Capability 28%.

Broadly speaking, the combined-cycle machine is the most capable asset, nuclear is very capable while wind is inferior.

How the asset is actually used depends on the vagaries of the marketplace, with fuel costs, debt repayment, profit, etc. coming into play. However, some machines are significantly more capable than others.



Matt Chester's picture
Matt Chester on Apr 26, 2019

Definitely an interesting idea-- but I think the challenge comes with how to standardize these measures. If they are going to be used widely, you want them to accurately represent the potential and you want to avoid anything that unfairly 'punishes' a given source or gives another an undue edge. I'd be interested to see how the industry could develop a measure like this

Bob Meinetz's picture
Bob Meinetz on Apr 28, 2019

Good luck standardizing "capability" or "potential," Matt. Next, we'll be forcing consumers to pay for "awesomeness."

Matt Chester's picture
Matt Chester on Apr 28, 2019

Well, that's exactly what my comment was, that it can sound great as an idea and not make sense when it comes to trying to actually standardize. Thinking more about it and reading the comments here, it seems to confirm my initial impression to Doug's question that there just can't be a single number or  measure that people look like. Trying to simplify the topic would do more harm than good, and this is why we need experts involved at every step of the decision making, not looking at any single number but understanding the pros and cons of every type of generation

Bob Meinetz's picture
Bob Meinetz on Apr 28, 2019

Matt, simplifying any topic as much as possible is the ideal. Making any concept more complex than it needs to be is the goal of ideologues and fraudsters. And energy capacity is a simple concept: the amount of energy something can produce. It's not efficiency (the ratio of output to input), it's not the lack of energy consumption.
If we interpret energy capacity "at any given point in time," as it has traditionally been interpreted, variable or intermittent capacity is undefined, thus any value assigned to it is also undefined. Though in computer programming undefined is often interpreted as 0 (zero), more accurate would be  "Huh?".

Michael Khachiki's picture
Michael Khachiki on Apr 26, 2019

This is a great question. To answer this, one needs to understand what “capacity” means in each market? If we take a high level view, capacity in its simplest form (volume) is reduced to “balancing supply and demand”.

Capacity reserve is the insurance policy against unexpected changes in either the demand side (eg: unexpected peaks in demand) or supply (eg: plant or grid faults).

To use mathematical terms the capacity is the to ensure the equation below always applies:

Supply => Demand

Attached to the simple definition above, capacity has multiple dimensions, some of which are outlined below.


Is there adequate generation installed on the grid to meet the demand. The attached graph from Australian Energy Regulator demonstrates capacity and capacity reserve.

//, This figure compares total generation capacity with NEM peak demand since the NEM began. It shows actual demand and AEMO’s demand forecasts two years in advance. YTD data is at 1 April 2019.


The capacity equation will change as demand varies with time. Therefore, the maximum volume available may exceed the demand, and that’s when there is over capacity or inversely if under capacity if the supply cannot meet the available demand at a given point in time.


Capacity is also governed by the grid availability, notwithstanding generation capacity if the grid (transmission + distribution) cannot deliver the required supply to the demand, then that impacts the capacity also.


The economics of the fuel markets (oil, gas, coal…) also plays a part in capacity, notwithstanding the available demand and generation plants, if the economics of power generation do not make sense, then the capacity equation will be imbalanced as the power generators will not generate the required power.


The technology mix is another factor. If the demand is highly transient or erratic in pattern, then the generation capacity needs to respond to this behaviour. If the generation technology mix is unable to respond in time to demand then it will cause imbalance in the capacity equation.


The societies expectation is changing and is demanding cleaner and more affordable power generation. This brings a new dimension to capacity equation and impacts the investment preference in power generation technology and hence capacity.

To understand if there is adequate capacity, one needs to look at the each of the above variables and the interplay between them to understand if there is adequate capacity.

Capacity reserve adds another dimension to the equation. Capacity reserve is the insurance policy and provides reliability for times that capacity equation is not balanced.

For example, the Hornsdale Power Reserve case provides a good perspective and demonstrates the interplay between all the energy dimensions mentioned above.

Some of the newer technologies such as peer to peer energy exchanges also play an interesting role in this area and influence the capacity and reserve capacity which Richard correctly points out. We are trying to provide an answer from the demand side which adds compelling answer and input into the capacity equation.

Given that most markets are going through an energy transition and are evolving, so is capacity and capacity reserve.

Richard Brooks's picture
Richard Brooks on Apr 26, 2019

Michael, you make some excellent points. I believe that "Capacity Exchanges" offer the best market based solution to properly value all types of resources that are needed to balance supply and demand. We are just now strating to see innovative exchanges appear, such as Atlantic Power Exchange, (your link) and Level Ten, to name a few. An effort is underway to initiate development on a nationwide standard for such an exchange, under the North American Energy Standards Board (NAESB), called AOCE.

Bob Meinetz's picture
Bob Meinetz on Apr 28, 2019

Michael, your attempts to redefine the word "capacity" duly noted, here's what a dictionary says the word means:

"n. the amount that something can produce."

What does "amount" mean?

"n. a quantity of something."

Now, the something we're measuring is important. In physics, energy is a scalar, not a vector, quantity. Though vector quantities like temperature or momentum can be positive or negative, scalar quantities are non-directional - they are always positive (or zero).

So you should know physicists view your multiple energy dimensions above, like Amory Lovins's "negawatts", like considering demand-response, efficiency, etc. sources of energy, as nonsense.

Words matter.


John Miller's picture
John Miller on May 2, 2019

When is capacity not capacity?  This post has definitely generated a lot of debate on the subject.  What is obviously missing is that Developed Countries, such as the US and EU are designed and operated to provide ‘on-demand’ power for most consumers.  In other words, customers can turn on electric lights, appliances and other electric equipment/devices whenever they want, without having to plan or schedule their increased power demand loads.  This of course requires sufficient backup or ‘peaking power’ or adjustable power generation 24-7, which is a basic requirement for Utilities’ Company’s backup power loads/capacities, as needed to reliably balance supply and demand 100% of the time. 

Intermediate power generators (wind & solar) have ‘average annual’ capacity factors on the order of about 35% & 25% respectively, but on a ‘on-demand’ power supply basis, both these renewable power sources have capacity factors of effectively ‘zero’ most the time (65% & 75%); at night and during no-wind periods.

Bob Meinetz's picture
Bob Meinetz on May 8, 2019

Thanks John, for taking my point above about variable or intermittent capacity being undefined, and relabeling it "effectively zero" - makes more intuitive sense.
By extension:
"Variable wind & solar have effectively zero value for future capacity planning purposes,"
"The participation of wind & solar in capacity auctions, at the expense of consumers, provides effectively zero value in return."

Steven Collier's picture
Steven Collier on Apr 21, 2020


Thanks for raising a cornerstone question regarding how we think about the rapidly changing foundations and functions of the electric grid.

A few observations:

1. We need a new context and maybe even new metrics and terminology for thinking about grid reliability.

(1) The grid has never really been about capacity. It's always been about energy. Consumers use energy, not capacity. Obviously, there has to be enough capacity to meet the demand for energy in any time interval. But it's energy that makes toast, cools beer, moves EVs, lights homes and businesses, keeps the Internet up in a pandemic. 

(2) The "capacity", both real and virtual on the customers' sides of the meters is now just as important as the "capacity" within the bulk electric system.  

(3) There are two grids now . . . the legacy bulk electric system and the distributed one. The extreme case is the customer with their own self sufficient microgrid.

(4) Rather than talking about capacity we should figure out how to measure and express the adequacy or resiliency of the grid, expressed for both the grid as a whole and for the individual customer. And I don't think that LOLP, SAIDE, SAIFI, CAIDI are sufficient, maybe not even relevant.

(5) Perhaps customers can purchase increased resiliency from utilities or disintermediaries who implement some or all of it on their sides of the meters?


Doug Houseman's picture
Doug Houseman on Apr 22, 2020

1) yes consumers consume energy and not capacity. I whole heartedly agree. But if you can't make the energy on demand, then the consumers can't consume. The energy resources (generation, storage or demand response) need to be there and ready to provide. Texas last summer was a great example of demand greatly exceeding supply for a few days, because some energy resources were not producing. 

4) There are not very many microgrids yet, and the cost of building one is not trivial, in fact I have never had one pencil out on pure economic terms. But I take your point. Distributed generation is going to grow, but in large dense cities, the bulk system will still be required to get the power that people want to them, there is not the space to put in any sort of distributed generation until Mr. Fusion is available at CVS or Home Depot. 

5) Hydro Quebec tried this in the 1980s, and the regulator shut them down. It will be interesting to see what happens in more modern times. 

Michael Keller's picture
Michael Keller on Apr 21, 2020

Not that difficult to define capability. Amount of energy that a power plant can reliably produce in year. X mWh/divided by number of hours in a year. Thermal plants can hit 90% capability rather easily. Green energy is around 30% because of the intermittent and erratic nature of solar and wind.

Doug Houseman's picture
Doug Houseman on Apr 22, 2020

As defined by IEEE, FERC and USDOE what you are discussing is Capacity Factor, not capacity. 

Capacity factor is the percentage of the maximum output (nameplate) that a plant puts out over a period of time. 

Capacity has been the maximum output of a plant - and - the way the industry has used it, it has meant operationally the output that can be scheduled in advance at an arbitrary time to meet schedule needs. 

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