The Power Equation · Appendix C

Energy glossary

92 terms, defined the way the book uses them.

#

1P, 2P, 3P: Proved; proved plus probable; and proved plus probable plus possible reserves, the low, best and high estimates, with at least a 90%, 50% and 10% chance of being met or exceeded.
45Q: The US tax credit for capturing and storing carbon dioxide; after the 2025 law, $85 per tonne for storage and for utilisation or enhanced oil recovery alike, and $180 per tonne for direct air capture, for projects that begin construction before 1 January 2033.
45U: The US production credit for existing nuclear plants, created by the IRA and kept by the 2025 law through 2032.
45V: The US clean-hydrogen production credit; after the 2025 law, available only to projects that begin construction before 1 January 2028.
45X: The US advanced-manufacturing production credit for domestically made solar, battery, wind and other components, transferable for cash; the 2025 law kept it for solar and batteries with a phase-down to 75% in 2030, 50% in 2031 and 25% in 2032, and ended it for wind components after 2027.
45Y and 48E: The technology-neutral US production and investment credits for clean electricity and storage that replaced the older PTC and ITC from 2025. After the 2025 law, wind and solar qualify only if construction begins by 4 July 2026 or the project is in service by 31 December 2027; storage and other technologies keep full credits for construction begun through 2033.

A

AD/CVD: Anti-dumping and countervailing duties: US tariffs imposed after trade cases find imports sold below fair value or subsidised, used repeatedly against Chinese and Southeast Asian solar cells and modules.
Allowed ROE: The return on equity a regulator permits a utility to earn on the equity-financed share of its rate base; about 9.77% on average for US electric utilities in 2025 (RRA).
Ancillary services: Grid services other than bulk energy, such as frequency regulation, spinning reserves and voltage support, bought by grid operators to keep the system balanced second by second.

B

Basis: The price difference between two locations, such as a plant's node and a trading hub, or a regional gas price and Henry Hub.
bcf/d: Billion cubic feet a day, the US unit for gas flows and LNG export volumes.
boe: Barrel of oil equivalent: gas and natural-gas liquids converted to oil by energy content, usually at 6,000 cubic feet of gas per barrel; a convenient sum that hides very different prices.
Brent: The North Sea crude benchmark against which most of the world's oil is priced.

C

Capacity factor: A plant's actual output over a period as a share of what it would produce at full nameplate output for every hour.
Capacity market: An auction or obligation, such as PJM's, that pays generators and other resources per megawatt of capacity for being available at peak, in addition to what they earn from energy.
Capital recovery factor: The level annual payment, as a share of capex, that repays an investment over a set number of years at a given cost of capital.
CBAM: The EU's Carbon Border Adjustment Mechanism, which charges importers of carbon-intensive goods for embedded emissions; its definitive phase began on 1 January 2026.
CfD: Contract for difference: a contract, often with the state as counterparty, that pays a generator the difference between a fixed strike price and the market price, and claws back the difference when the market is higher; the basis of UK offshore-wind auctions.
Chapter 11: US bankruptcy reorganisation, under which a company continues to operate while it restructures its debts; used by Enron, PG&E, Chesapeake, SunEdison, SunPower and Northvolt among others in this book.
Child well: A well drilled close to an older "parent" well in the same rock, which typically recovers less because the parent has already drained part of the reservoir.
Co-location: Placing a large load, such as a data centre, beside a power plant to take its output directly, with or without using the wider transmission grid; the subject of FERC's PJM order of December 2025.
Combined cycle: A gas plant that uses a gas turbine and then recovers its exhaust heat to drive a steam turbine, reaching heat rates of about 6.5 MMBtu/MWh or better.
Contango: A market in which futures prices are above spot prices, rewarding anyone who can store the commodity; extreme contango preceded WTI's negative settlement in April 2020.
Cost of capital: The return investors and lenders require to fund an asset; for capital-heavy energy assets the largest single determinant of the price they need.
Curtailment: An instruction to a generator, usually wind or solar, to reduce output because the grid cannot absorb it.

D

Decline curve: The forecast of a well's falling output over time, usually hyperbolic at first and exponential later; the basis of a shale well's EUR.
Development margin: The difference between a project's cost and its value once permitted, contracted and financed, earned by developers who sell or hold the project.

E

Energy-only market: A power market, such as ERCOT, that pays generators only for the energy they produce, relying on scarcity prices rather than capacity payments to fund firm capacity.
EUA: EU Allowance: the right to emit one tonne of CO2 under the EU Emissions Trading System.
EUR: Estimated ultimate recovery: the total volume a well or field is expected to produce over its life.

F

FEOC: Foreign entity of concern, and in the 2025 law "prohibited foreign entity": rules that deny US tax credits to projects or factories with too much ownership, control or material assistance from specified countries, chiefly China, for construction begun after 31 December 2025.
FERC: The Federal Energy Regulatory Commission, which regulates interstate transmission, wholesale power markets, interstate gas pipelines and LNG terminals' siting.
Firm capacity: The capacity a grid operator can count on at peak, after allowing for outages, fuel and weather; much lower than nameplate for wind and solar. Also called accredited capacity.
FOAK and NOAK: First-of-a-kind and nth-of-a-kind: the cost and risk of an early build against a mature, repeated one.

H

Heat rate: The fuel a plant burns to produce one megawatt-hour, in MMBtu/MWh; the lower, the more efficient.
Henry Hub: The Louisiana pipeline interconnection whose gas price, in $/MMBtu, is the US benchmark and the basis of most US LNG contracts.
Hyperscaler: One of the largest cloud and platform companies, such as Microsoft, Amazon, Google and Meta, whose data centres became the largest new buyers of firm power in 2024–26.

I

Interconnection queue: The list of projects waiting for a grid operator's studies and agreements to connect; about 2,060 GW in the United States, with a median of about 61 months from request to operation (LBNL, 2026).
IRA: The Inflation Reduction Act, signed on 16 August 2022, which expanded and extended US clean-energy tax credits, made them transferable and created manufacturing credits.
ISO and RTO: Independent system operator and regional transmission organisation: the non-profit bodies, such as PJM, ERCOT, MISO and CAISO, that run regional grids and wholesale markets.

J

JKM: Japan Korea Marker, the spot LNG price benchmark for Northeast Asia, in $/MMBtu.

L

LCOE: Levelized cost of energy: the constant price per MWh at which a plant's discounted revenues equal its discounted costs over its life.
LFP and NMC: Lithium iron phosphate and nickel-manganese-cobalt, the two main lithium-ion cathode chemistries; LFP is cheaper and more durable, NMC denser in energy.
Licence to operate: The fourth factor of the power equation: the permits, approvals, safety record and public consent that let a company build and keep running.
LNG: Liquefied natural gas: gas chilled to about −162°C for shipping by tanker.
Load-shedding: Deliberate, rotating cuts to customers' supply to keep a grid from collapsing when supply falls short of demand.

M

Margin call: A demand from an exchange or counterparty for more collateral when a position moves against its holder.
Mark-to-market accounting: Booking a contract or position at its current estimated value; applied to illiquid, long-dated contracts valued by the company's own curves, it let Enron report profit years before any cash arrived.
mb/d and kb/d: Million and thousand barrels a day.
Merchant: A plant or business that sells into the market at spot prices rather than under long-term contract or regulated rates.
Missing money: The shortfall between what a plant earns from energy sales in a market and what it costs to keep and build, which a capacity payment or contract must fill.
MLP: Master limited partnership: a US tax-advantaged listed partnership that pays out most of its cash, widely used by midstream companies.
MMBtu: One million British thermal units, the standard unit for gas prices.

N

Nameplate capacity: A plant's rated maximum output; for solar, state whether it is AC or DC.
NEM: Net energy metering: tariffs that credit rooftop-solar owners for power they export; California's NEM 3.0, effective 15 April 2023, cut that credit sharply.
NERC: The North American Electric Reliability Corporation, which sets and enforces reliability standards under FERC oversight.
NPV and NPV-10: Net present value, the sum of discounted cash flows less the investment; NPV-10, or PV-10, discounts at 10% a year, the oil industry's convention.

O

OBBBA: The "One Big Beautiful Bill Act", the 2025 US budget law signed on 4 July 2025 (P.L. 119-21), which ended or phased down many IRA credits.
Offtake: The sale of a project's output, usually under a long-term contract that lenders can rely on.
OPEC+: The alliance formed in December 2016 between OPEC and other producers led by Russia to coordinate output; the United Arab Emirates left with effect from 1 May 2026.

P

PAYGo: Pay-as-you-go: selling solar kits and other assets on daily or weekly mobile-money payments, with remote lock-out if payments stop; in effect consumer lending.
Peaker: A plant, usually a simple-cycle gas turbine, that runs only in the hours of highest demand and prices.
Power equation: This book's claim that an energy company creates durable value only when four factors are all present, supply at a cost the market will pay, a route to market, capital matched to the asset and a licence to operate, and that they multiply rather than add.
PPA: Power-purchase agreement: a contract to buy a plant's output, physically or financially, at an agreed price for a set term.
Prevailing wage and apprenticeship rules: IRA conditions that a project of 1 MWac or more must meet to receive the full value of most clean-energy credits.
PRMS: The Petroleum Resources Management System of the Society of Petroleum Engineers and partner bodies, the industry's framework for classifying reserves and resources.
Process safety: The management of major hazards, such as fires, explosions and releases, as distinct from personal injuries.
Proved developed and undeveloped (PUD): Proved reserves producible from existing wells and facilities, and those that still need capital to produce.
PUC and PSC: Public utility commission and public service commission: the state bodies that set retail electricity and gas rates.

R

Rate base: The regulated asset value, net of depreciation, on which a utility earns its allowed return.
Reinvestment rate: Capital spending as a share of operating cash flow, the simplest summary of a producer's strategy.
Reserves: Petroleum that is discovered, recoverable, commercial and remaining as of a given date under defined conditions; to be distinguished from resources, which are not all commercial.
Round-trip efficiency: The share of energy put into storage that comes back out; about 85% for a lithium-ion battery in this book's example.
Royalty: The share of production or revenue paid to the owner of the mineral rights, a landowner or a state.

S

Safe harbour: A rule that lets a project lock in a tax credit by meeting a test, such as starting physical work, before a deadline; Notice 2025-42 (August 2025) removed the 5% spending safe harbour for most wind and solar projects beginning construction on or after 2 September 2025; a federal court vacated the notice on 6 June 2026, restoring the safe harbour for now (appeal status unconfirmed).
Scarcity pricing: Very high prices, up to a market's cap, set when supply barely meets demand; ERCOT's cap was $9,000/MWh until 2021 and $5,000/MWh from 2022.
SPA: Sale and purchase agreement: a long-term contract for LNG.
Spare capacity: Oil production that can be brought on within months and sustained, held mostly by Saudi Arabia and a few Gulf producers.
Spark spread: The power price less the cost of the gas a plant burns to make each MWh (heat rate times gas price), sometimes also less variable operating cost; for coal, the dark spread.
Special-purpose entity: A separate legal vehicle created for one transaction; Enron's were used to move debt and losses off its balance sheet.

T

Take-or-pay: A contract under which the buyer pays for committed volumes or capacity whether or not it takes them.
Tax equity: Investment by a party with a large tax bill, usually a bank, in a project's tax credits and depreciation in exchange for a share of its cash flows.
Tolling agreement: A contract in which a buyer pays a fixed fee for the right to use a plant's capacity, such as a liquefaction train or a battery, and supplies its own input.
Transferability: The IRA provision, kept by the 2025 law, that lets a project or manufacturer sell its tax credits for cash to an unrelated buyer; transfers reached about $42 billion in 2025 (Crux).
TTF: Title Transfer Facility, the Dutch gas hub whose price, in €/MWh, is Europe's benchmark.

V

Variable dividend: A payout that rises and falls with free cash flow, adopted by shale producers after 2020.
VPP: Virtual power plant: many distributed resources, such as home batteries, thermostats and EV chargers, aggregated and dispatched as if they were one plant.

W

WACC: Weighted average cost of capital: the blended return required by a project's or company's lenders and equity investors.
Winterisation: Protecting plants, wells and fuel systems against freezing; voluntary in Texas before Winter Storm Uri and mandatory afterwards.
WTI: West Texas Intermediate, the US crude benchmark, delivered at Cushing, Oklahoma; it settled at about −$37.63/bbl on 20 April 2020.

Y

Yield: In manufacturing, the share of units started that meet specification; in batteries and solar, the decisive driver of cost per good unit.
Yieldco: A listed company that buys operating, contracted projects from a sponsor and pays out most of its cash, raising new equity to grow; the model that failed with SunEdison's TerraForm vehicles.