A new way to measure what matters most: how close a unit comes to meeting its total potential profit.
Tom Ottem is senior project manager at Energy Velocity, and Mike McNair is director of EV Market Ops at the company.
Approximately 65 percent of capacity additions in the last few years have been gas-fired, combined-cycle units. Recent market conditions have been hard on these new resources, which have suffered from significantly low capacity factors. But such units are popular because of their flexibility. In markets that squeeze generators between high fuel prices and lagging electricity prices, this kind of flexibility is crucial. A capacity factor isn't capable of measuring or valuing that kind of generator attribute for combined-cycle units, or any other type of unit.
A better metric would measure a unit's ability to capture peak prices while minimizing shoulder period and off-peak losses. Furthermore, it would measure the extent to which a unit dispatches according to favorable market conditions. A better metric, from a market-oriented perspective, is what we have described below.