How utility companies charge your business for electricity
Utility charges may seem like an unavoidable cost to operating a commercial facility; however, with a solid understanding of your utility bill and a little bit of planning, you might be able to save thousands of dollars each year in utility costs. In a highly competitive marketplace, reducing your operational costs this way will give your company a strong advantage from the outset.
Electrical companies usually charge for their services in two ways: consumption charges and demand charges. Consumption charges are what people usually associate with utility companies; they simply reflect a measure of how much electricity a facility uses over a given billing cycle. What many people don’t understand is demand charges, which measure the maximum rate at which a facility uses electricity. In other words, you are charged not based on how much energy you use overall, but based on the maximum demand you put on the electrical grid.
Electrical companies vary in how they calculate demand charges. Most often, they determine when a facility’s demand for electricity is highest (referred to as the peak demand), and charge a high rate for energy usage during that period of time. For example, if peak demand occurs for 15 minutes at 1 p.m. on August 15, the demand charge will be applied exclusively to that 15 minute period of time.
Understanding and responding to demand charges
To fully comprehend demand charges, it’s important to understand why utility companies charge for demand rather than consumption alone. Electrical companies must be able to supply all of their clients with electricity, even during times when demand for their supply is highest. Since peak demand may occur for only a few hours every year, the company must maintain generation facilities and transformers that will sit idle most of the time. The demand charges are thus meant to incentivize facilities to keep demand from reaching above a certain level.
Despite being calculated over a period of time as short as 15 minutes, demand charges can make up 30-70% of a company’s electricity bill. Finding ways to reduce demand charges is thus vitally important to lowering your operational costs. One way to do this is through peak shaving, which involves using outside power sources, such as backup generators or battery systems, to provide some of the power during times of peak demand. If you are interested in using peak shaving to reduce your demand charges, you may benefit from AlltimePower’s demand response program, which helps companies track and reduce demand. To find out more, contact us today.
How peak shaving can reduce demand charges
Demand charges may be frustrating for companies that have trouble managing their demand for power. Even if a facility manages to keep consumption charges low, it could incur thousands of extra dollars’ worth of demand charges if it has a high peak demand one hot day in August, when the A.C. unit is blasting and all of the facility’s appliances are working simultaneously. On the flip side of the coin, however, demand charges represent an excellent opportunity for companies to cut operational costs.
Peak shaving involves pinpointing the periods of time during a given day, week, or year when demand is likely to be highest and reducing the demand during those times. There are a number of ways companies can employ peak shaving to prevent demand from going too high. For example, a company could reschedule non-essential electrical appliances to function only during times when demand is low. This might involve scheduling water sprinklers or water heaters to run during off-hours instead of during the day.
Another effective form of peak shaving involves installing alternative sources of power to run during times of peak demand. These may include backup generators, battery systems, or even solar panels combined with a battery backup system. Demand will thus be shared between the backup power sources and the electrical company, which will reduce the strain on electrical facilities and keep demand from reaching expensive heights.
Determining times of peak demand
The first step to implementing a peak shaving system is to determine times when peak demand is highest in your facility. If you are unsure how you are being charged for electricity, analyze your latest electricity bill or ask a representative from your utility company to explain it to you. You should also be able to determine when peak demand occurred. Examine utility bills over that last year or more to see if you can determine a pattern.
For a better understanding of your facility’s energy usage, you may want to install an energy monitor to measure precisely how much power is used by each appliance on a day-to-day basis. Your utility company may be able to provide you with some of this information as well. Pay special attention to which appliances are consuming the most energy during times of peak demand.
Once you determine which appliances are using the most energy and at which times of the day, week, and year, you’ll be able to start developing a peak shaving plan. Start by determining if you can reschedule loads to occur during times when demand is low. You may also want to look into replacing inefficient or oversized appliances that may be consuming a lot of energy. For example, if you have an inefficient lighting system, you could replace it with modern LED lighting. Air conditioning is another example of an appliance that can often be downsized to reduce electrical consumption.
Peak shaving with backup generators
Once you’ve reduced peak demand as much as you can by rescheduling loads and replacing inefficient or oversized appliances, reevaluate your energy usage. If you would like to further reduce peak demand charges, create a plan to implement alternative energy sources. Though these will involve an upfront investment, over time they will allow you to save money by reducing your utility bills.
When it comes to alternative energy sources, backup generators are usually the cheapest option. Install one or more generators near your electrical panel and connect it to your energy system. Schedule the backup generator to function in conjunction with the normal supply during times when demand is highest. A backup generator may be fueled by diesel, natural gas, or propane. Each fuel has different advantages and disadvantages. Diesel is the most efficient, but if you want to prioritize convenience, connecting your generator to natural gas lines may be the best bet.
Deciding on what size generator you want involves balancing how much you want to spend with how much of the peak demand you want to shave off. A larger generator would cost more, but it would also be able to handle more of the electrical load and thus reduce the peak demand by more. If possible, determine how much demand varies from the norm during times of peak demand. This may help you find the right capacity for your generator.
Peak shaving with battery systems
Backup generators are not your only peak shaving option. Battery systems also allow you to reduce demand charges by supplementing your energy consumption with an alternative energy source during times of peak demand. Though battery systems tend to have a higher upfront cost than backup generators, they are easier to maintain and thus incur fewer maintenance and repair costs. They are also cleaner, less noisy, and take up less space, which may benefit some facilities.
While traditional backup generators depend on a fuel source, backup battery systems store energy from the grid and release it during times of peak demand. While this does not reduce energy consumption charges, it can drastically reduce peak demand charges. Depending on which battery system you install, you may even be able to automate when the battery charges and when it releases energy, which would reduce the manpower needed to run the system.
Battery systems can also be used in conjunction with other power sources, such as fuel-powered generators or solar power. If you already have solar panels installed, or if you plan to install them, a backup battery system is an excellent way to store the solar power and use it when it is most needed. In addition to being a cleaner source of energy, solar energy may also incur the benefit of tax incentives for your business.
Creating a peak shaving plan
Before you install an alternative source of power, you should first develop a comprehensive peak shaving plan. Determine how much demand you would like to shave off, about how much it will cost upfront, and how much you will likely save on your utility bill each billing session. This will allow you to make sure you achieve your goals and help get your team on board with the alternative sources of power.
If you could use help tracking your energy usage and creating an effective peak shaving plan, you may find AlltimePower’s peak shaving program for commercial and industrial facilities useful. Our demand response experts will help you analyze your energy bill, identify effective demand response strategies, and find the right alternative energy sources to install. Calculate your potential savings with AlltimePower, or contact us today for more information.