EME 810
Solar Resource Assessment and Economics

6.6 Power Grid Pricing and Capacity


Reading Assignment

  • S. Stoft (2002), Power System Economics (pp. 30-39, 40-48; in two chunks)
  • J.R. Brownson, Solar Energy Conversion Systems (SECS), Chapter 9 Solar Energy Economics (Section on "Managing the Grid")

The main form of energy that we think of in society is power from electricity. As a society, we typically deliver electric power through a complex distribution system called the power grid. In this reading, Stoft provides a fairly useful background to the pricing of utility scale electricity. I think that exposure to this content will be very helpful in your career development with solar and power systems.

As supplemental reading, you can also review the text on ISO/RTO strategies in the SECS chapter on Solar Economics (also citing Blumsack as below), and we will jump ahead briefly to Ch 14 to show a PV example of capacity factor.

Pricing Energy, Power, and Capacity

The first reading from Stoft presents the core metrics being evaluated (energy, power, and capacity) and their associated utility scale pricing units of $/MWh.

  • Energy is measured in units of MWh, priced as a stock in units of $/MWh
  • Power is measured in units of MW, priced as a flow, but over a block of time in $/MWh
  • Capacity is measured in units of MW, also priced as a flow in $/MWh

Capacity is likely the newest term to everyone; it is a measure of the potential for power delivery. The price of power or capacity is metered as monetary units (dollars, euros, yuan, etc) per time unit of an hour, per MW of power that flows. The price of energy is just dollars per MWh (analogous to dollars per MJ), which end up as the same effective unit cost metric, but from different perspectives.

  • $0.12/kWh is the same price as $120/MWh
  • $0.06/kWh is equivalent to $60/MWh

In traditional power systems, we have turbine-generators that yield power from spinning magnets. A generator size is set by the maximum power production it can yield, measured in units of MW. We pose the capacity of a generator in terms of the potential to produce a flow of power in MW, the same units as power.

The capacity factor is the fraction (from 0-1; or a percentage from 0-100%) of flow utilization over the duration of a load. We find this fraction as a ratio of the power generator's true output (evaluated over a period of time such as a month) relative to the potential power output that would occur ideally when operating full out (nameplate capacity) for an indefinite period of time.

The capacity factor (cf) of a fueled power plant (coal, NG, fission reactor) can have a range depending on the applied technology >>30-40%. However, the capacity factor of PV is highly dependent upon the solar resource of the locale.

  • Consider that night event will automatically drop solar capacity to 50% (annually),
  • then the intermittency from clouds will deliver more drops in potential,
  • finally, the conversion efficiency of a PV panel will drop the capacity a bit more.

For example, the capacity factors for PV in the USA range from 10.5% in Alaska, to 18-19% in most of the USA, up to 26.3% in Arizona, Nevada, and New Mexico. [see Table 14.2 in SECS, Brownson]. The capacity factor for PV in sunny Germany is about 11%, while the cf calculated for the desert regions of Peru is >25%.

Grid Management: Markets

The second reading by Stoft links in with our prior reading of Solar Economics in SECS and the role of market supply and demand for electricity. Electricity is not easily or efficiently stored in large amounts--we don't have pumped hydro storage everywhere, and large-scale batteries are not ready for the utility market.

In an electricity grid, power generation and power consumption must be closely matched at all times. These are key concepts in our understanding of electricity. If power generation and power consumption get out of balance, blackouts and other systemic failures occur.

  • Interconnection: a network of interconnected power grids within a region. The USA has three: two major interconnections in the Eastern Interconnection and the Western Interconnection, and the third is in Texas (yes, TX has its own interconnection). That is 3 separate power grids in the lower 48 states.
  • Regional Transmission Operators (RTO) / Independent System Operators (ISO): not-for-profit organizations whose job is to act on behalf of a group of electric utilities in a region, managing and maintain a joint and stable power transmission grid. RTOs can establish centralized spot markets in electric power and ancillary services, and financial contracts for hedging against transmission congestion.
  • Locational Marginal Prices (LMP): the RTO provides LMPs on the wholesale market through a centralized dispatch, which reflect the social cost of transmitting electric power to a specific location within the managed system.


S. Blumsack. Measuring the benefits and costs of regional electric grid integration. Energy Law Journal, 28:147–184, 2007