The Moving Target of Capacity: What Does It Mean for Your Budget?

Capacity has been a topic of conversation in the energy community for a while now but what exactly is capacity as it relates to your electricity, and how does it affect your business?

Imagine you have a garden hose, and when you turn on the water full blast, the total amount of water that can flow through the hose at one time is limited by the diameter of the hose. The only way to get more water from Point A to Point B is to use a wider hose or add more hoses.

Capacity works the same way. The amount of electricity that can flow through the transmission lines at any given time is limited. To ensure reliability of the power grid, power generators and transmission companies by law have to have the infrastructure in place to meet the needs of the grid when usage is at its maximum for all end users.

To make this possible, a capacity charge is passed through to consumers as part of their total energy cost.

While the cost of capacity has always varied based on metrics of supply and demand, since the Polar Vortex of 2014 and the continued retirement of coal-fired generation, capacity costs have grown substantially over the past three years. Capacity now makes up over 25% of your total supply costs, where it was previously only about 7-10%.

To combat these higher capacity costs, you can do two things:

  • Enroll in a “PLC Management” program that provides alerts on peak days of the summer when your capacity costs will be set for the following year.
  • Take energy efficiency measures such as LED lighting retrofits or HVAC upgrades that will reduce your energy usage and demand-based capacity costs.

Higher capacity costs likely are here to stay for the next few years. By acting now, you can help reduce this now significant component of your energy cost.