Capacity Markets – Definition

I decided to write a multi-part series on capacity markets.  Capacity is one of the services that generators of electricity sell to the grid.  When a power plant sells capacity, the grid receives the right but not the obligation to procure a set number of MWs from the generator during a future time frame (typically a six months to one year period which will occur one to three years in the future).  The amount of capacity procured by the grid is determined based on a long-term forecast of expected electricity demand, which is impacted by factors such as the economy, technological advances, and weather.

My capacity market series will cover the following topics:

Capacity Markets – Definition

Capacity Markets – Background

Capacity Markets – A look across the United States

Capacity Markets – Renewable Generation