If you’re a major commercial or industrial utility customer, demand charges are likely to make up a significant amount of your payment. The demand charge is a monthly price that you pay as part of the expense of keeping the electric utility’s infrastructure in good working order so that electricity may be delivered to your building. The demand chargeamount on each month’s statement is determined by how high your energy use, measured in kilowatts (kW), peaked during the month. As a result, the higher your peak kW usage, the higher your demandcharge.
When electricity is cheaper, energy storage allows you to use electricity from the grid to charge your storage system (non-peak times). Later, when demand charges and energy costs are higher, the system might minimize your expenditures by discharging electricity from your storage system. Peak load reduction is the term for this. To understand more, read the Demand Charges Fact Sheet.
What does it mean to charge on demand?
- Energy consumption: the amount of energy (kWh) utilized during the billing period multiplied by the relevant energy price ($/kWh).
- Demand: the greatest amount of power (kW) drawn during the billing period for any specific time interval (usually 15 minutes), multiplied by the corresponding demand fee ($/kW).
If you want to effectively communicate the value that a solar installation will give to a commercial customer, you must first understand demand charges and how they affect your client’s energy bill as a solar specialist.
A customer’s demand (measured in kW) is a measurement of how much power they consume at any particular time. Demand charges are applied by utilities based on the largest amount of electricity utilized by a customer in any interval (usually 15 minutes) throughout the billing cycle. Commercial and industrial clients typically pay demand charges because they have larger peak loads (i.e., peak power consumption) than residential customers. Most utility rates define a customer’s maximum power demand; exceeding the maximum power demand for several months can result in a switch to a different rate with higher demand costs.
Demand charges are applied by utilities based on the largest amount of electricity utilized by a customer in any interval (usually 15 minutes) throughout the billing cycle.
The maximum power demand is multiplied by the demand charge rate of the prevailing utility rate to determine the demand fee for a given month. While each utility’s billing method is different, some tariffs incorporate numerous types of demand charges, with greater charges during peak demand hours and reduced prices during “partial-peak” or “off-peak” hours (time of use rates). Demand charges can add a significant amount to monthly electric bills for consumers whose utility rates include them.
Let’s look at how demand charges are calculated in practice. The following is the basic formula for calculating demand:
If the utility charges $9.91 per kW for demand charges and the client has a peak demand of 500 kW for the month (representing the 15-minute period when they consumed electricity at their greatest rate), the demand fee is calculated as follows:
Different demand rates at different periods may be included in more intricate rate systems (for instance peak and off-peak hours). For example, from November to March, a utility might define on-peak hours as 6 a.m. to 10 a.m. and 6 p.m. to 10 p.m., and from midday to 9 p.m. from April to October. Demand is $7.13 per kW during peak hours and $4.94 per kW during off-peak hours. During peak hours in January, the customer’s maximum demand was 500 kW. During off-peak hours, their maximum demand was 150 kW.
Based on sample Green Button Data imported into Aurora Solar’s solar design and sales software, an example of a (different) commercial customer’s monthly energy consumption (orange) and bills (blue); the portion of the bill composed of demand charges is shown in light blue.
When it comes to consumption costs, the impact of solar is rather straightforward: by producing power from a solar installation, a commercial customer can reduce the amount of energy they must buy from the utility, lowering utility bills.
Solar does not, unfortunately, give continuous cost reductions when it comes to demand charges. Because solar energy production varies depending on weather and time of day, periods of high solar power will not always coincide with peak power consumption for a building. As a result, solar consumers cannot rely on their solar systems to lower demand costs. A chance rainstorm at a time when the facility is using the most electricity during the month would result in a demand fee comparable to what it would have been before solar was installed.
Regardless, understanding this piece of the customer’s bill is critical in determining what portion of the customer’s costs solar can offset.
Demand charges are in place to encourage customers to spread their energy consumption out over time. This is due to the fact that utilities must maintain sufficient generating and distribution capacity to meet the needs of all customers during the times when the grid is most heavily used (such as a hot day when most customers are using air conditioning). This means that a substantial quantity of expensive equipment, such as power plants, must be kept on standby for these infrequent moments of high demand. Customers who use a lot of power for a short period of time contribute more to the expenses of creating and maintaining the essential infrastructure during peak times through demand charges.
Samuel Insull, a colleague of Thomas Edison and a key actor in the extension of electricity access in the United States, originally proposed demand charges in the early 1900s. Since then, they’ve been a popular method for commercial electricity invoicing.
Fidel Marquez, a senior vice president with ComEd, summarized the utility’s rationale for demand charges as a way to save money in comments to Midwest Energy News about a proposal to apply demand charges to residential customers in Illinois in 2015 “correct any inequities that may arise as a result of low-usage customers subsidizing high-usage customers.” He went on to say that “Customers’ demand drives the cost of supplying electricity, and ComEd constructs and maintains its delivery system poles, wires, and transformers to handle everyone’s maximum demand for power.”
However, there are differing viewpoints on the efficacy of demand charges as a means of reducing peak demand on the grid, with some pro-solar organizations arguing that demand charges are detrimental to solar’s value proposition.
Demand charges are here to stay, regardless of the reasons for them or how effective they are, so it’s critical to understand how they function. Understanding demand charges allows solar installers and customers to accurately estimate how much of a monthly bill can be offset by solar and gives them a starting point for looking into other ways to reduce peak demand.
- Demand charges are costs added to commercial and industrial customers’ electric bills based on the maximum amount of power used in any (usually 15-minute) interval throughout the billing period.
- Demand charges can account for a large amount of a commercial customer’s bill.
- Although both have the same monthly energy use, we may expect the aeronautical research center to have a larger monthly bill than the factory in the example from the beginning. Because its peak demand is much higher, the aeronautical research center will have significantly higher demand charges.
- Solar can save both institutions money by lowering their energy usage, but it won’t save the aerospace research facility nearly as much because solar can’t reliably lower demand costs.
What can be done to lower demand charges?
Many electric companies offer demand fee reduction, offset, or elimination programs. The majority of these schemes require you to consent to the utility company managing your loads during peak hours. During peak times, a chicken farmer, for example, may be obliged to use his diesel generators rather than rely on the utility provider for power.
During peak periods, these schemes assist utility providers in lowering their expenses. These initiatives could be advantageous and cost-effective for your company if you have the ability to switch to a different energy source during busy hours.
Invest in a solar panel system
If the majority of your power use occurs during the day, a solar panel system can help you save money on demand charges.
A solar system uses the sun to generate electricity, allowing your company to use solar-generated electricity rather than utility-generated electricity. If, on the other hand, your demand spikes on a cloudy day or in the evening, you will be charged demand charges.
Invest in an energy storage solution
Investing in a battery storage solution allows you to store energy generated by your solar system for usage during peak times or anytime you see a surge in energy demand.
Energy storage solutions are an excellent method to lower demand costs, but they require a significant upfront investment as well as regular maintenance.
Do you need assistance lowering your demand charges? Our solar professionals are standing by to assist you. We’ll examine your demand analysis and assist you in determining the most cost-effective option.
What is the formula for calculating electricity demand?
Demand charges are derived by multiplying the current per kW rate by the highest 15-minute interval of power consumption throughout the billing cycle. As a point of comparison, United Power’s average household demand is 7 kW.
How do you tell the difference between a demand charge and an energy charge?
Only the total amount of energy you utilize is used to calculate your energy costs. Your demand costs are calculated based on the largest amount of electricity you use in a single billing period and at the time of day your business requires it.
What exactly is a BDO auto charge arrangement?
The Auto Charge Facility is an automated payment facility available to BDO Credit Card holders (the “Cardholder”) that allows them to conveniently settle periodic bill/s (i.e. utility, telecommunications, premiums, membership, and the like) of accredited utility partners by charging the amounts due to their BDO Credit Card through a credit card transaction.
What does it mean to use energy on demand?
For the past few years, electric energy prices have risen at a fairly consistent rate, and additional rate hikes are expected in the future.
If you’ve ever looked over your utility bills, you’ve probably seen that consumption and demand charges account for the majority of your entire expenditure.
The demand charge can sometimes exceed the consumption price, and the demand charge can account for approximately half of the total cost.
As a result, it’s a good idea to learn how energy consumption and demand charges are calculated so you can figure out the best ways to reduce both and save money for your company.
Electricity is Energy, But Knowledge is Power
This blog post will focus on the two most significant charges on most commercial electric utility bills: consumption (measured in kWh) and demand (measured in kWh) (measured in kW).
Consumption
It’s simple to understand and compute your electric usage charge. The unit of measurement for consumption is the kilowatt-hour (kWh) (kilowatt hours). This is a figure that represents how much energy you used throughout the billing month. The cost of a kWh varies greatly. You could spend as low as $0.03 per kWh or as much as $0.30 per kWh or more depending on your geographic region and utility rate plan.
Demand
Demand is a more complicated topic. The amount of electrical power that must be generated at any particular time is referred to as demand by the electric utility. To put it another way, the utility must be able to deliver enough power at any moment during the day to meet the needs of all of its customers. As demand grows, more power sources must be sought, which can be quite costly. Typically, this cost is passed on to the utility’s customers. Demand, in the eyes of the consumer, refers to how quickly and efficiently you utilize energy.
In kW, the rate at which you utilize electricity is measured (kilowatts).
As HVAC cycles, lighting, and other loads are turned on and off, your demand will fluctuate from minute to minute.
The average amount of power you use in a 15-minute period is usually used to calculate demand.
Very small bursts of demand, such as those caused by electric motors turning on, will have little impact on the average 15-minute demand.
Longer periods of demand, on the other hand, will have a significant influence.
For example, leaving a powerful electric motor (such as a kitchen exhaust fan) running all the time will significantly increase your 15-minute demand.
The demand unit cost (kW) is always substantially higher than the consumption unit cost (kWh).
The cost of use is usually a few cents per kWh.
Typically, demand is charged at a rate of a few to several dollars per kW.
Demand charges just doubled this monthly bill
A factor known as power factor might also have an impact on your demand charge. The power factor of your site is a measurement of how efficiently it consumes electrical energy. If your equipment is inefficient with energy, it will have a low power factor, which means the electric company will need to bring additional generation capacity online to meet your needs. Your power factor measurement can be seen on many electric bills. A percentage is used to represent the power factor. A 100 percent power factor indicates that your equipment is operating at maximum efficiency. For power factors below 90%, utilities normally apply a multiplier to your demand fee. 1.2 to 1.5 power factor multipliers are typical.
If your building uses energy at a low power factor your bill will increase
Finally, on your bill, you may notice two forms of demand: real demand and billing demand. Actual demand refers to the greatest actual average 15-minute demand measured during the billing period. The billing demand is the greatest 15-minute demand recorded at your location in the previous month. The higher of these two numbers could be invoiced to you each month. A factor known as demand ratchet is used in bills that reflect both real and billing demand. Simply put, if you use a lot more electricity in one month say, in July in Miami the highest average 15-minute demand for that month will be billed for July and the next 11 months, even though actual demand is lower in subsequent months. The only exception to this rule is if your actual demand in a subsequent month for example, August in Miami was higher than the July demand, in which case the demand that would be billed for August would be increased to that higher number and used as the billing demand for the following 11 months, regardless of your actual demand. You’ll be locked into your greatest demand for 12 months if your rate contains a demand ratchet (some utilities use 6 months, some others use 18 months, but most ratchet plans use 12 months). Managing your demand is usually a smart idea, but it’s especially important when you’re dealing with a demand ratchet.
In Maharashtra, what are demand charges on an electricity bill?
Only if the actual demand recorded exceeds the contract demand would demand charges of Rs. 20 per kVA per month be charged for the standby component for CPPs.
Is it true that solar reduces demand charges?
Demand charges are in place because it is expensive for utilities to always make power available for customers at all times.
It is costly to have equipment on standby all of the time.
Although utilities cannot predict when or if a peak demand will occur, they must be prepared for it if and when it occurs.
Furthermore, the demand tax ensures an equal billing process by charging customers who use more electricity at greater speeds for shorter periods of time during peak hours more.
Residential consumers in Nevada are not subject to demand charges at this time.
However, as utilities move toward incorporating the demand fee as a routine part of the residential rate, this may alter in the future.
Energy consumption is the total amount of electricity used, whereas demand is the amount of electricity used at its peak.
Kilowatt hours (kWh) are used to quantify consumption, while kilowatts are used to measure demand (kW).
The demand of a client is calculated by dividing the demand interval with the highest energy consumption by the length of the demand period in hours.
Even if their consumption is comparable, the following is an example of how a demand charge affects two organizations differently depending on their usage:
Solar can assist lower demand costs, but it won’t be able to eliminate them entirely.
Solar systems that feed extra electricity back to the grid reduce total peak demand on the grid, allowing for reduced electricity market rates.
If a customer’s solar system can cover the majority of their energy needs, they can lower the rate at which they draw electricity from the grid.
Also, if a firm only operates during the day when the sun is shining, solar would be able to provide the energy needs of the business if the main demand is during that period.
Energy usage peaks during the summer months, and utility companies struggle to keep up with the demand.
Some of the demand is offset by solar.
Solar has been proven to assist reduce power outages and rolling blackouts in some areas, thereby strengthening the system.
Installing energy-efficient equipment, downsizing equipment, and timing work or processes for times of day when power prices are cheaper are all popular ways to better manage energy usage and help reduce peak demand.
What is an example of a high-demand electricity bill?
Monthly Maximum Demand Charge (LKR/kVA) This rate applies to supplies delivered and metered at 400/230 Volt nominal at each individual point of supply if the contract demand exceeds 42 kVA.