Basic Principles of Electricity Generation

Broadly, there are three different types of electricity generators: baseload, peaking, and intermittent. 

Baseload generators run most of the time. They meet the low level of demand, or load, that is essentially always present. 

Peaking generators run during the peak hours of energy demand. They are usually more expensive to operate and can be up and running more quickly than baseload generators. 

Intermittent generators are renewable generators, like solar or wind power. They are usually inexpensive to operate; however, their generation performance depends on uncontrollable environmental factors, so you can't precisely plan their dispatch.

Let’s outline some other key power generation terms and concepts.

Fuel Types

Different kinds of fuel can have significant impacts on factors such as efficiency and cost. 

The major types of fuel are coal (bituminous, sub-bituminous, lignite, anthracite, coal-derived synthetic gas), gas (natural gas), nuclear (uranium), oil (distillate fuel oil, kerosene, petroleum coke, jet fuel), hydro (reservoir, river, tidal), wind (onshore, offshore), solar (photovoltaic, solar thermal), and others (biomass, geothermal, landfill gas, solid waste, wood waste).

Other forms of fuel include tires, stored electricity, methane, fuel gas, and propane.

The Levelized Cost of Energy (LCOE)

Generators offer a certain amount of power to the ISO at a certain price, but on which criteria is this based?

There are four costs, which when combined, make up the levelized cost of energy (LCOE). The LCOE is the cost that a generator will pay for each megawatt (MW) of energy over a plant’s entire life span. The four costs are capital costs (cost of building), fixed costs (operational costs excluding the cost of producing the power, i.e. labor, maintenance, lights on), variable costs (operational and maintenance costs based on use and dispatch), and fuel costs (the costs of the fuels listed above).

The LCOE impacts the price at which a generator will offer megawatts. However, often generators utilize their variable cost of operating so that the plant is more likely to be dispatched, and if prices rise, other LCOE costs may end up being covered.  

Conclusion

Hopefully, this post gives you an understanding of electricity generation basics and how LCOE, fuel types, and ramp rates impact grid operations and locational marginal pricing.

Read the last two installments of this series: Financial Power Markets and Liquidity and Types of Financial Power Market Trades.

Next Steps

For more information on the terms in this blog post, check out the Yes Energy Glossary.

Explore resources we found helpful when putting together Power Markets 101 are available.

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