A new way to measure what matters most: how close a unit comes to meeting its total potential profit.
Approximately 65 percent of capacity additions in the last few years have been gas-fired, combined-cycle units. Recent market conditions have been hard on these new resources, which have suffered from significantly low capacity factors. But such units are popular because of their flexibility. In markets that squeeze generators between high fuel prices and lagging electricity prices, this kind of flexibility is crucial. A capacity factor isn't capable of measuring or valuing that kind of generator attribute for combined-cycle units, or any other type of unit.
A better metric would measure a unit's ability to capture peak prices while minimizing shoulder period and off-peak losses. Furthermore, it would measure the extent to which a unit dispatches according to favorable market conditions. A better metric, from a market-oriented perspective, is what we have described below.
The Economic Dispatch Factor
Operating a unit well means more than keeping it running. Planned outages must be timed to coincide with appropriately low market conditions. Forced outage risk must be reduced and maximum output sustained during periods of high prices. Often this is considered on a calendar basis, whereby shoulder months are used for maintenance so that reliability is highest during the peaking months. These decisions also can be made in real time. In ISO markets, where prices fluctuate hourly, generators that respond correctly to hourly market conditions stand to benefit from the daily peaks and valleys in the price path.
Energy Velocity has formulated a statistic using hourly generation and prices, and monthly marginal operating costs, combining them into a single measure of performance. We call it the Economic Dispatch Factor (EDF). It is similar to the capacity factor in that it is a normalized measure of how near a unit comes to reaching its full potential. However, instead of measuring success in terms of total generating hours, the EDF measures what matters most: profit, or rather, how close a unit came to meeting its total potential profit.
Essentially, the EDF looks at the decisions made for every hour during the year and asks the two-part question shown in Figure 1 below.
Ignoring (very real) complications such as wear and tear, ramp costs, spinning reserve revenues, and the physical limitations of various kinds of generating units, there are clear paths to a perfect operating solution: Operate at full capacity when you can make money and shut down completely when you stand to lose it. Pretty basic stuff. The EDF measures the extent to which a unit's operation matches the perfect operating decision. It also goes one step further and weights the right and wrong decisions by how right and wrong they were in terms of profit and loss.
The basic ingredients for the EDF are hourly generation data, 1 the total capacity of unit, 2 an estimate of a unit's marginal cost, 3 and hourly generator price data. 4 These four pieces allow one to define the operating decision tree, quantify the perfect solution, and quantify