Capacity Credit – What the Heck is That?

The concept of “Capacity Credit” is an arcane idea used by utility planners in ensuring that the lights stay on.

The Capacity Credit is essentially a guess by utility planners as to what the generation from a source will be at a given time. For example, in Ontario, the IESO uses a capacity credit of 10% for wind in the summer. That is, when they are planning how much generating capacity they need, they say that wind will supply 10% of its rated capacity in the summer. So if there are 1000 MW of wind installed, then wind is projected to supply 10% of 1000 MW, or 100 MW.

As previous blog entries and comments demonstrate, this is quite conservative. The GE study, commissioned by the IESO, suggested that a summer capacity credit of 16-19% would be appropriate. And a winter credit of 38-42% would be appropriate. A recent Energy Probe study of 3 of Ontario’s large wind farms this past summers showed that they had a capacity factor of a remarkably high 22% from May – October. Of course, equipment selection matters, and this issue was not referenced in either study. Obviously the location and wind resource, and the extent of geographic dispersion of wind plants matters. PJM, which is the system operator in New Jersey, Pennsylvania, and Maryland, has granted a capacity credit to wind of its annual capacity factor. Our utility planners today use the more conservative 10% for summer.
Recently, the Ontario Power Authority released its proposed Supply Mix Plan, where it estimated how much generation could come from different sources. You need to have enough generation capacity (plus imports) to meet demand at a given moment. But what is the capacity that will be available when you need it? All sources of power require maintenance. Nuclear units have run about 60% of the time since they were built. Coal and natural gas can achieve 85-90% availabilities, but sometimes turning on the gas is very expensive. Waterpower has remarkably good reliability, but can have a variation in rainfall, which will vary its output, reducing its “Capacity Credit”. Utility planners need to make assumptions, informed by history, to ensure supply will be there when we need it. That is why they invented Capacity Credit.
One of the key conclusions in the Supply Mix Plan was that they had overestimated the reliable contribution from waterpower. 2005 was a very hot dry year. And waterpower supplied 20% below average. So the OPA cut the “capacity credit” for waterpower by 20%. Since Ontario has about 7000 MW of waterpower installed, that reduces available capacity by 1400 MW. Interestingly, the report recommended that Ontario build 2 new nuclear stations, with a capacity of about 1400 MW.

So the utility planners take their capacity credit assumptions, and add them up for the various technologies, like wind, water, nuclear etc. Then they forecast the load. Then they build in a reserve. And that is how much capacity they conclude they need.

One interesting aspect of Capacity Credit is that it will vary depending on the nature of other sources of supply. A study in Quebec, for example, gave wind a Capacity Credit of 108% of what it generated. The reason for this is that wind produces more in the winter. And Quebec is a winter peaking jurisdiction – they consume more electricity, and they have higher system peaks, in the winter. So wind allows the water to accumulate behind their dams in the energy intensive winter season, and allows them to have higher head in their dams in the summer. Higher head yeilds more energy. Voila – capacity credit of 108% of what they generate.

Denmark would have a good capacity credit for wind, because it is well connected with Norway, which has lots of waterpower storage. Germany, by contrast, has very little hydropower storage. So when the wind doesn’t blow, they need to fire up the fossil fuel units, import power, or both.

But always remember: Capacity Credit is an artificial construct of utility planners. Hopefully, it is informed by history. (But of course it is not informed by history in Ontario for wind – we have no history). But the Capacity Credit assigned to a technology may or may not have a real meaning, may or may not have political overtones or intentions, and may or may not have anything to do with what that technology will actually produce when it is needed.

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