Companies can pay high “demand charges” from utilities for using large amounts of energy during their monthly billing cycle.
Utilities Charge for Both Energy and Demand
A typical utility bill has at least two types of charges. First, utilities charge their customers for energy, or kilowatt-hours (kWh). To calculate their monthly energy charge, businesses should multiply their price per kWh by the number of kWh they use.
Secondly, utilities add demand charges. Demand charges are designed to pay for the fact that utilities need to keep at all times extra energy resources available and ready to go for periods of high demand, whether expected or unexpected. In general, demand charges are calculated by identifying the highest number of kilowatts (kW) a customer uses during numerous “demand intervals” in a billing cycle. Typically, utilities measure power demand in 15-minute intervals during a given month. The peak kW level is multiplied by the demand charge. A utility might charge $10 per kW per month, and if the peak-demand interval is 100 kW in a month, the customer will pay $1,000 in demand charges.
These charges can pile up quickly, and sometimes represent half or more of a given month’s electric bill.
“If you can peak shave, you can lower the highest demand interval, which then lowers your demand charge from the utility,” Lord explains.
Solar Systems Can Lower Peaks in Warm Climates
If a company has a solar system and uses a lot of electricity for air conditioning–which is generally needed during the day–the solar will lower the peak demand. Because solar energy is largely generated between 10 am and 3 pm, the solar will “shave the peak,” says Lord.
But peak demand can also occur at night. For example, at a college, students might stay up late studying on a hot day for exam week. That could move peak demand, so it occurs between 6 pm and midnight. In this case, a battery comes in handy. The battery can be filled with solar energy during the day, and it can release the energy at night to shave the peak.
“The battery management system is important,” notes Lord. “If you have a production facility, you can program the battery based on expected electricity consumption.” For example, if a company has a grain elevator that runs late afternoon or evening, the management system would program the battery to peak shave during the hours the elevator is operated.
Choosing Battery Size Can be Complex
Choosing a battery size can be tricky if a company plans on peak shaving. If you oversize the battery and have too much electricity available, you may not be compensated very well from the utility under applicable net metering laws.
“If you are net metering and producing more electricity during certain hours of the day, the utility will credit you,” Lord explains. But in some states, under net metering, utilities don’t pay their customers the retail rate for net metering; they pay the avoided cost rate, which is much lower.
If a company only receives the lower rate, “it could be a disaster to have an oversized battery,” says Lord. “If your battery is full and the system is oversized, you would send power back to the grid” and not be fully compensated.
On Cloudy Days, it’s Harder to Shave Peaks
Another challenge of using batteries to shave peaks: A company may not have enough capacity left in its battery to shave peaks when they occur. That might happen after a few cloudy days. There wouldn’t be enough solar to fill the battery, then release it to lower demand during a peak period.
It’s critical for companies to understand their demand charges, their net metering laws and how to best manage their batteries–generally with a battery management system.
With this kind of planning, companies can save money and make use of cleaner power. That’s because they’ll be relying on renewable solar or wind stored in batteries during periods of high demand. Using lower cost clean energy from a battery instead of more expensive dirty “peaking power” from a utility not only lowers energy charges, but also has the potential to lower demand charges through peak shaving.
“More and more, we’re seeing companies turn to peak shaving,” says Lord.
How to Learn More
Get expert help formulating a plan to accelerate your future by joining Chris Lord and Keith Cronin in the Solar Executive MBA Training course. You’ll meet like-minded people and get direct access to the experts during the 6-week instructor led session. Chris and Keith will be in the course answering questions on the discussion board, reviewing and providing feedback on the required project work and hosting a weekly conference call. After the session ends you’ll continue to have access to the course materials for a full year. Enroll Today!
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