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Electricity Generation Basics's Power Markets 101

Haven’t had time to catch up on the latest articles in the series? The entire collection is available here!

In this installment, we’ll be going over all things generation. Understanding generation helps make more sense of the system of economic dispatch and the ways the ISOs plan to meet energy load.

Learn About:

  • Different fuel types

  • Understand different categories of generation:

    • Baseload

    • Peaking

    • Intermittent

  • The pros and cons of different generation sources

The Importance of generation in power markets

Generators have many nuanced impacts on the power grid in addition to simply providing electricity to meet demand. Some of the reasons why different types of generators or power plants are important to power markets are:

Power Markets 101

Baseload, Peaking & Intermittent Generation

Broadly, there are three different types of generation: baseload, peaking, and intermittent.  Baseload generators are running 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.  They are usually very inexpensive to operate, however, their generation performance is based upon uncontrollable environmental factors so their dispatch cannot be precisely planned. Before we go into a more detailed discussion of these different types of generators, let’s outline some other key generation terms and concepts.  

Fuel types

As you might be able to gather from the vocabulary listed above, different kinds of fuel can have significant impacts on components 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 renewable (biomass, geothermal, landfill gas, solid waste, wood waste), other forms of fuel include tires, stored electricity, methane, fuel gas, and propane.  Read about common generators and facts in the slide deck below.

Levelized cost of energy (LCOE)

As you may remember from the blog post Competitive Markets Design, generators offer a certain amount of power to the ISO at a certain price, but off of which criteria is this based? There are four costs that when combined make up the Levelized Cost of Energy (LCOE).  The LCOE is the cost that a generator will pay for each 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 cost (operational and maintenance cost based on use/dispatch), and fuel cost (cost of the fuels listed above).  The LCOE impacts what price a generator will offer megawatts at, however, oftentimes 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.  Hopefully, this post gives you an understanding of the different types of generators and gives you an idea of how LCOE, fuel types, and ramp rates impact grid operations and locational marginal pricing. Look out for the last two installments of this series: Financial Power Markets & 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.

Resources we found helpful when putting together Power Markets 101 are available here.

Generation data is available in our products, and if you subscribe to Live Power or IIR you can access their data in the Yes Energy toolkit as well.  Click here to sign up for a product demo! 

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