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Understanding Electricity Supply Cost Components

August 10, 2016

August 2016 Edition:Electric choice brings many benefits to consumers including a variety of price options, risk mitigation, and energy experts to help you decide what is best for your business’ unique energy needs. To understand the benefits and options available, a familiarity of electricity supply cost components is fundamental.


Understanding Electricity Supply Cost Components

In the past, your local utility provided all components of electric service, which included generation, transmission and distribution. In states where electric choice is available, the local utility no longer owns power plants nor does it profit by selling energy to consumers. The electricity generation and transmission, where applicable, may now be provided by competitive retail energy supply providers. Electric choice brings many benefits to consumers including a variety of price options, risk mitigation, and energy experts to help you decide what is best for your business’ unique energy needs. To understand the benefits and options available, a familiarity of electricity supply cost components is fundamental. We’ve outlined a few important ones below. If you have further questions, please contact your AEP Energy sales representative or contact us by phone at 1-888-545-7999 or by email at nhines@aepenergy.com.

Electricity Supply Cost Components
Energy
Energy is the cost for electric generators to produce each unit of power that they
provide to the grid. These costs are based on generator fuel costs and generator efficiency.
This is the main component of your electricity supply.
Load Following (Shaping and Variability)
This is the cost to match energy production and delivery to each customer’s unique
profile, and to provide for unexpected changes in customer usage over time.
Losses
Losses is the cost of energy that is lost during transmission from the energy source (generators) to the consumer. Energy is lost due to resistance in electric wires that dissipate energy as heat.
Capacity
This component covers the cost of generators to be on
standby at all times to meet the demand of the electric grid.
Transmission
Transmission is the cost associated with the movement or transfer of electric energy over an interconnected group of electric wires, conductors, and other equipment used to move large quantities of power at high voltage, usually over long distances between a generating or receiving point and major substations or delivery points.
Ancillary Services
Ancillary services are charges which include a variety costs that are incurred by the grid operator to ensure the grid is functioning smoothly, moment by moment, day after day.
Renewable Portfolio Standards (RPS)
This component recovers costs that result from state
mandated requirements for energy suppliers to purchase a portion
of their energy from renewable sources, such as wind, solar, and biomass.

 

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