Tips to Reduce Peak Demand Charges on Your Electric Bill

As energy usage rates fall in many areas of the U.S., demand charges are comprising an increasing portion of commercial and industrial (C&I) electricity bills, encompassing as much as 50 percent in some cases. So it makes sense for facility and energy managers to learn how to reduce them. Businesses cannot change the demand charge rate, but they can take steps to minimize the level of peak energy demand that their utility will use to calculate the charge.

Following are three actions organizations can take right now to assert more control over this most unwelcome component of their electricity bills.

Tip #1: Understand and leverage TOU rates

Time of use (TOU) pricing was introduced in the 1990s as a means of making electricity market pricing—and, hence, supply and demand—more rational and efficient. TOU rate structures encourage energy consumers to shift energy use to less costly partial-peak and off-peak hours.

Although most utilities have made TOU plans available at this point, many offer customers multiple options, each with different peak times and rates. Facility and energy managers should take the time to understand the different rate structures available through their utility. They will need to find the one that minimizes the total cost of their electric bill based on their organization’s typical usage – the optimal combination of energy charges (per kilowatt-hour) and demand charges (per kilowatt).

How energy consumption and generation align with time of use periods can have a big impact on electric bills. Recently, many utilities moved the highest rates for peak demand into the evening hours when solar generation is ramping down.

SDG&E TOU Example

How energy consumption and generation align with time of use periods can have a big impact on electric bills. Recently, many utilities moved the highest rates for peak demand into the evening hours when solar generation is ramping down.

SDG&E TOU Example

Finding the right rate structure is especially important for energy consumers that generate their own solar energy, in light of the recent shift some utilities have made in their TOU peak-rate hours. Previously, peak-rate hours coincided with peak solar generation hours, a boon for energy consumers that received credits for the excess solar power they “sold back” to the grid. As solar PV became increasingly prevalent, however, the excess supply increased the volatility of loads on the grid. Utilities responded by shifting the peak-rate hours to later in the day (as shown above). For some solar PV customers, this move has reduced the return on investment of their solar PV systems.

Tip #2: Inspect your load profile

Reducing a facility’s peak energy demand for each billing cycle starts with understanding how and when energy is used throughout the day, the week, and the seasons. Typical sources of demand spikes include HVAC systems, industrial machinery, and EV chargers. Also, although it’s not intuitively considered a load, the fall-off in solar generation in the afternoon hours and on cloudy days creates a sudden surge in demand from the grid, which solar-generating facilities need to take into account.

Sometimes, operations can be modified to accommodate the new peak hours. Equipment upgrades may be justifiable if the amortized cost of the upgrade is less than the demand charge increases that the legacy equipment incurs.

Tip #3: Consider energy storage

As an alternative to operational modifications or energy efficiency projects—or in parallel with these initiatives—businesses can explore the possible benefits of on-site energy storage. When used in “peak shaving” mode, battery-based energy storage systems can automatically discharge power whenever a spike in usage occurs, which reduces the size of the peak that the utility will use in calculating the organization’s demand charge. The software at the heart of the energy storage system uses both historical demand data and current loads to determine when and how much power to discharge. All of this happens without manual intervention. The batteries also automatically recharge from the grid, at the time of day that is the most beneficial for the customer.

Energy storage software can display a facility’s energy load profile and actions taken by the system to reduce spikes in demand.

Energy storage software can display a facility’s energy load profile and actions taken by the system to reduce spikes in demand.

Organizations that have solar PV can also use energy storage systems to resolve the shift in TOU peak hours by using the solar firming capability in their energy storage system together with peak shaving. In solar firming capacity, the energy storage system discharges to fill sudden gaps between the business’s energy demand and the solar system’s supply. These gaps occur when solar generation declines in the afternoon, or is interrupted by cloud cover.

To help businesses understand the impact of energy storage, most energy storage providers offer a free site analysis, which looks at the facility’s energy load profile and assesses the size of energy storage system that would deliver a net financial benefit.

From a utility’s standpoint, demand charges are a reasonable way to manage system volatility. For commercial and industrial customers, however, they represent a major complication in business and environmental initiatives. Demand charges, for example, have been cited as the number one obstacle to EV-charging infrastructure projects. Individual businesses that want to offer on-site DC fast charging to their employees or patrons will also be affected by EV charging demand spikes. These businesses have even greater motivation to better manage their grid demand through energy storage.

Though various industry groups are working to protect the interests of C&I customers, it doesn’t appear that businesses will be rid of demand charges anytime soon. Thus, it’s up to organizations to tackle the demand charge beast as best they can. These three tips offer facility and energy managers a running start.