Q8Restructured Power System
Question
Q.8. What is Loss of opportunity cost?
Answer
Loss of opportunity cost (LOC) compensation is a payment made to a generator that is instructed by the system operator to reduce or curtail its scheduled output for system security reasons, compensating it for the profit it would have earned had it been allowed to generate as originally scheduled.
Loss of opportunity cost refers to the compensation paid to a generating unit when the system operator directs it to reduce its output below its originally scheduled/committed level (for instance, due to transmission congestion, system security constraints, or re-dispatch instructions), compensating the generator for the net profit margin (revenue minus marginal cost) it would otherwise have earned on the curtailed energy had it been permitted to generate at its full scheduled level, ensuring generators are not financially penalized for complying with system operator instructions that are made purely for system reliability reasons rather than economic ones.