Capacity Charges

Think of paying a security guard a fixed monthly salary for simply being present and ready to respond, regardless of whether anything actually happens on any given day. Capacity charges work on the same principle for a power plant, a fixed payment for keeping the plant available, independent of how much electricity is actually drawn from it.

Capacity charges typically cover a generator's fixed costs, loan repayment, depreciation, fixed operating expenses, and are paid whether or not the plant is actually dispatched to generate on a given day, as long as it remains available and ready when called upon. This is deliberately separated from energy charges, the variable payment tied to actual electricity supplied, so that a generator's fixed cost recovery does not depend entirely on how much power gets used.

This two part structure, capacity charges plus energy charges, is standard across most Indian PPAs and is exactly what protects a generator's basic viability even during a low demand period when its plant might barely be called upon to run.