Curtailed Energy Compensation Mechanism
A curtailed energy compensation mechanism defines how generators are paid when system operators reduce their output for reliability reasons such as congestion, oversupply, or voltage limits. Compensation can follow market prices, contract specified strike prices, or negotiated formulas that reflect lost opportunity cost. Clear rules reduce disputes, support financing, and incentivize cooperation with grid operators.
Mechanisms vary widely: some PPAs provide make whole payments when curtailment exceeds a threshold, while others grant renewable energy certificate credits or contract extensions. Capacity markets may also treat forced curtailment differently from economic curtailment when assessing performance penalties.
As storage and hybrid plants proliferate, compensation rules now consider whether curtailed energy can be shifted or sold later. Regulators are experimenting with locational curtailment markets that allow flexible loads or neighboring systems to buy the otherwise curtailed energy.
Transparent curtailment data and compensation provisions help investors model downside risk, especially in regions with weak grids or limited transmission upgrades. Without such mechanisms, lenders may require conservative coverage ratios or avoid certain markets altogether.
Technical Details
- •May reference market prices, contract strike prices, or predefined formulas
- •Often includes annual curtailment thresholds before compensation triggers
- •Interacts with REC issuance, capacity penalties, and availability guarantees
- •Needs accurate telemetry and operator reporting to validate claims
- •Evolving to include storage, hybrid, and demand response participation
Why It Matters
Curtailment risk directly affects project cash flows and lender confidence. Tera catalogs compensation clauses, historical curtailment rates, and congestion drivers so developers can negotiate balanced terms and prioritize grid friendly technologies.
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