Capacity costs, which are usually the second highest contributor to the overall cost of energy supply, are dramatically increasing throughout much of the United States. Generally, this cost fluctuation is due to the phasing out of coal generators. These generators are becoming relics in the modern era, and many are being shut down. Conversely, natural gas generation is on the rise, but it does have a few drawbacks: its pricing can be more variable and it’s more difficult to transport than coal. Those types of variables can translate into some power grids having to pay more to ensure reliability.
In short, capacity costs are prices paid to ensure that variable availability of power sources will not result in blackouts or brownouts, even in the toughest temperature conditions and winter and summer can produce. Continue reading