Capacity Payment (CP)

The rules' formal term is the 'capacity price'. It is the price applied to the available capacity that central-dispatch generators and central-dispatch energy storage bid for each trading hour. The underlying 'reference capacity price' is set so that a reference generator can recover its net cost of entry.

The Cost Evaluation Committee sets the reference capacity price each year, and it is multiplied by the capacity price factor, the time-of-day capacity price factor and the performance-linked capacity price factor, so each generator is paid differently. Because SMP is a short-run price reflecting only variable costs, fixed costs are covered separately through this capacity settlement.

News-reading tip: stories saying 'plants get paid even when they don't run' usually refer to capacity payments. The payment is designed as compensation for keeping plant ready to run when needed.