Energy Important Concepts

commercial operation date (COD)

the date when an energy asset becomes operational

net capacity factor (NCF)

ratio of actual electric energy output divided by the maximum possible energy

watts

basic unit of power for energy transfer

kilowatts

1000 watts

megawatts

1000 kilowatts

power purchase agreement (PPA)

agreement that governs the sale of energy to the end user (like a utility)

megawatt hour (MWh)

a million watts of electrical power for one hour

engineering, procurement, construction contract (EPC)

contract that governs the entire construction of a solar asset

operations and maintenance contract (O&M)

contract that dictates operational outflows of the project regarding maintenance of the solar asset

PPA Term

the duration and terms of the PPA aggreement

P50, P75, P99

Production estimates provided in an engineering production report

direct current energy (DC)

energy that flows in one direction only from positive to negative without reversing polarity. Comes from energy producing resources like batteries and solar panels.

alternate current energy (AC)

energy that oscillates in both positive and negative directions, used in commercial power grids

degradation

the reduction of power production of solar panels over time due to environmental factors

DC to AC ratio

Ratio of output DC power to interconnection AC power, standard is 1.25.

loan to value (LTV)

the maximum funding from a lender, versus the market value

debt service coverage ratio (DSCR)

EBITDA divided by the principal and interest payable

base rate

the minimum acceptable interest rate that lenders require when financing a solar project (typically LIBOR)

margin

number that is added to the base rate indicating the total borrowing cost, compensating lenders for jurisdiction risk

swap rate

number that adjusts the floating base rate, adds a premium due to market dynamics

total effective rate

sum of the base rate, margin, and swap rate

criteria for considering the size of BESS

rated power, energy capacity, and duration

BESS market strategy

import energy at low prices when supply is abundant, export energy at high prices when supply is scarce

EPC contractor

single entity that pulls together and manages all of the individual subcontracts with all of the suppliers

power purchase price

pre-agreed price per MWh for generated energy

imbalance

the difference between forecasted and actual energy generated

embedded benefits

part of a PPA that have various monetary additions, like system changes, taxes, or subsidies

indexed PPA

type of PPA where the power price is tied to energy market indices

fixed PPA

type of PPA where the price per MWh is agreed upfront. More risk for the supplier

flex PPA

type of PPA where both parties can lock in prices based on market rates

power

the rate at which energy is transferred at a single point in time. measured in watts. represents how quickly energy is consumed or generated

generation stack

the hierarchical structure of energy generation resources by the cost of producing 1 MWh, ordered by fuel types and expense level.

short run marginal cost of operation

the cost of producing 1 unit of electricity (in MWh), determined by the cost of fuel, carbon, ramping, and efficiency.

merit order

the order where the cheapest forms of energy are used first when meeting demand

marginal cost of production

how expensive it is to produce one extra unit of electricity. This determines the price for the hour, and the unit being used to generate that extra unit sets the price.

net metering

system for renewable energy users to send excess electricity back to the grid, earning credits on their utility bill to offset future energy costs

ERCOT

Electric Reliability Council of Texas

MISO

Midcontinent Independent System Operator

SPP

Southwest Power Pool

rated power

maximum amount a BESS asset can charge or discharge at any given time instantaneously (measured in MW). Sometimes referred to as installed capacity.

energy capacity

the maximum amount of stored energy that a BESS asset can hold (measured in MWh).

duration

the length of time a BESS asset can discharge at full power.

energy

the total amount of work done or stored, measured in kilowatt hours (kWh). It represents the quantity of electricity used or produced over time.

locational marginal pricing (LMP)

the market price of electricity at a specific location on the grid, determined by supply and demand in real time

investment tax credit (ITC)

a one-time tax credit based on a percentage of the upfront capital cost of a renewable energy project (typically solar)

production tax credit (PTC)

a tax credit based on the amount of energy produced per kilowatt hour over a 10 year period for a renewable energy project (typically wind)

notice to proceed (NTP)

formal notification that instructs a contractor to start work on a construction project

renewable energy certificate (REC)

tradeable certificate that represents 1 MWh of electricity from a renewable energy source (like wind or solar)

resource adequacy (RA)

regulatory requirement where utilities must prove they have enough reliable capacity (in MW) to meet peak demand + a buffer