Capacity factor is the ratio of the annual average energy production (kWhAC) of an energy generation plant divided by the theoretical maximum annual energy production of a plant assuming it operates at its peak rated capacity every hour of the year. The formula for calculating capacity factor is given by:
For a PV system, the rated capacity in the denominator is either reported in terms of the aggregated capacity of (1) all its modules or (2) all its inverters. PV modules are rated using standard test conditions and produce direct current (DC) energy; inverters convert DC energy/power to alternating current (AC) energy/power. Therefore, the capacity of a PV system is rated either in MWDC via the aggregation of all modules' rated capacities or in MWAC via the aggregation of all inverters' rated capacities. The ratio between these two capacities is referred to as the inverter loading ratio (ILR).
Because the capacity factor is calculated using a system's rated capacity, it can be represented using exclusively AC units or using AC units for electricity (the numerator) and DC units for capacity (the denominator). Both capacity factors will result in the same LCOE as long as the other variables use the same capacity rating (e.g., if capacity factor is calculated in kWhAC/kWhDC, then CAPEX should use the units of $/kWDC). Both capacity factors will also produce the same estimated energy generation as long as they use consistent units.
Because a PV system's DC-rated capacity is typically higher than its AC-rated capacity, a PV capacity factor calculated using a DC-rated capacity has a higher denominator and, thus, a lower ratio than a PV capacity factor calculated using an AC-rated capacity. To translate between the two capacity factors, simply multiply or divide by the ILR. For example, the PV system capacity factor calculated using a DC-rated capacity (CFDC) is given by:
where CFAC is the capacity factor calculated using an AC-rated capacity and ILR is the inverter loading ratio.