Why Understanding Capacity & Energy Matters

Posted on September 20th, 2020

The terms, “capacity” and “energy” are often tossed around in a confusing, and sometimes improper, manner when discussing electricity. For building owners, however, being clear on these terms is important. Following are examples of different relationships between energy and capacity that can impact electricity costs, reliability, supply and more.

Capacity and Energy

In the world of electricity, “capacity” (sometimes also called “power”) commonly refers to the maximum quantity of electricity that can be generated or delivered by a resource and is usually expressed in megawatts (MW – millions of Watts) or kilowatts (kW – thousands of Watts). Capacity is a measure of the ability to do work such as the difference in capacity between a lawn tractor and a locomotive. Seasonal weather variations can affect capacity to the extent that some generating facilities will have a summer capacity (usually lower) and winter capacity (usually higher).

“Energy” is work (e.g. capacity or power) delivered over time. It’s the amount of electricity generated or consumed over an interval of time, most commonly an hour. Electric bills are often calculated based on kilowatt-hours (kWh) consumed, and utility-scale energy is measured in megawatt-hours (MWh) or gigawatt-hours (GWh).

The connection between capacity and energy is time: Energy (E) = Capacity (C)  X  Time (T), so when you see “hours” in a term, you’re almost certainly dealing with energy.

Half the Story

It seems that articles about energy frequently provide only half of the story. For example, numerous recent articles describe the installation of a 20 MW battery energy storage system. On its face, that’s impressive because it represents energy storage on the scale of a power plant capable of supporting roughly 16,000 homes. However, the other half of the story paints a somewhat different picture.

After extensive searching, one article finally reveals that the 20 MW battery system stores 16 MWh of energy. What that means is that the battery system can supply 20 MW for a maximum of 48 minutes. If the battery system is to supply stored energy over night when solar panels aren’t producing electricity, then it needs to supply electricity for at least 10 hours. In this case, the system can supply only 1.6 MW (for 10 hours) or enough to supply 1,280 homes rather than 16,000.

Similarly, there are numerous articles about the growth in battery energy storage and how it helps solve the intermittency problem of wind and solar electrical generation. Both of those facts are true; however, the other half of the story is this: there’s a long, long way to go until there is enough energy storage to power the country for even 6 hours.

Energy Information Administration data from 2018 indicates that the U.S. utility-scale battery energy storage (>250 kW) capacity totaled 861 MW capable of storing 1,236 MWh of energy. That was enough to store 0.12% of the average daily electrical energy output of all wind and solar (including small rooftop) generation in the U.S. or to support the average U.S. daily demand for electricity for a total of 9.3 seconds.

Demand Response

Many facilities participate in Demand Response (DR) programs to reduce their electricity costs. Under a typical DR program, utility customers receive meaningful financial incentives for reducing, or simply having the capability to reduce, their electrical consumption on hot, humid peak demand days, when requested by the utility. One possible area of confusion with many Demand Response programs is that compensation is based upon participants’ kW or MW reduction in electricity demand rather than on reductions of kWh or MWh of consumption.

The answer to this conundrum lies in the DR program details. Most Demand Response programs require customers reduce their demand (capacity) for a fixed period, usually two-hour blocks, in order to fulfill their program obligations. This simplifies customer implementation of DR programs since it is easier to identify and control kW levels (such as turning off lights or equipment) rather than predicting kWh consumption.

Energy & Capacity Markets

Grid operators (e.g. Independent Systems Operators (ISOs) and Regional Transmission Organizations (RTOs)), are responsible for not only delivering electricity on a second-by-second basis today, but also for supplying electricity years into the future. To minimize the cost of the electricity they provide, grid operators are constantly buying and selling electricity in real-time like a commodity through the Energy Market. The Energy Market, however, is doesn’t always offer sufficient incentive for investors to risk their money building new generating facilities…which may never be utilized enough to recover the investment.

This is why some grid operators have created “Capacity Markets”: to provide financial incentives to ensure sufficient generating capacity is available to meet the future demand. A basic Capacity Market holds an auction where bidders offer to make a certain amount of generating capacity available usually 3 years in the future at a fixed energy price ($ per MWh). The grid operators select the amount of future capacity they feel is needed, and the successful bidders receive a guaranteed income to help them maintain and develop generating resources they have committed to have available.

Why They Matter

When it comes to energy storage be it battery, green hydrogen, thermal or some other type, you need the right amount of capacity and energy for your intended purposes such as resiliency, reliability or load shifting. Optimizing energy resources and capacity is equally critical to maximize income from participation in a Demand Response program. Furthermore, substantial changes or questions arising in the Capacity or Energy Markets might signal potential reliability issues or price increases for building and facility owners. There are plenty of other examples where understanding and managing capacity and energy are important for building owners.

Let Trystate help you develop a plan for your building’s capacity and energy needs to reduce energy costs, minimize greenhouse emissions, improve resiliency, reliability or sustainability or any or all of these. See if you qualify for one of our free energy evaluations for your building or campus.