Q. What’s the difference between capacity and energy? Does it change electricity prices?
A. It’s a good question. The two are very different commodities.
Capacity is the physical amount of generation – power plants – the company has available to serve load in megawatts (MW); it represents power plants’ potential to generate electricity.
Capacity is related to peak demand. In other words, AEP Ohio must maintain a level of available capacity sufficient to meet the peak demand of its customers during the hottest summer days and the coldest winter nights and have some in reserve.
A utility’s capacity is calculated by totaling the capacity of each plant it owns and other contracted capacity it may have secured.
Energy is the amount of electricity (produced from capacity) customers consume over time. Energy is measured in megawatt-hours (MWH). Unlike capacity, each of us consumes or uses energy. When you turn on a light, plug in a computer or cool a home, you consume energy.
Retail marketing of electricity
Competitive Retail Electric Supply (CRES) providers must provide both generation capacity and electricity to participate in the market. If they do not own one or both entities they must buy them. This cost will affect the price they offer to retail electricity customers.