Three reasons for commercial energy users to address peak electrical demand

July 10, 2015

Businesses are always on the lookout for the most cost-effective way to consume electricity, especially considering that global demand for power will increase 40% by 2035 compared to 2013 levels. This energy increase is most pronounced during daily peak periods, known as "peak demand," when electricity is most expensive and most heavily drawn for more energy consuming practices like air-conditioning.

The true costs of energy
Unfortunately, what most businesses don't realize is that commercial energy users, unlike residential users, are charged special peak demand charges during "peak demand" periods and can save a lot of money by avoiding energy use during these times. In fact, "peak demand" charges may comprise up to 50% of a typical utility bill.

In commercial buildings you are charged for electricity based on two readings: one charge is for energy usage (kWh) and the other  for peak demand (kW). On a residential bill, which most of us are familiar with, utilities only charge for energy usage (kWh) which is analogous to using the odometer on the car and charging per mile driven.The peak demand charge is based on the highest draw of electricity for any 15 minute period during the month, which is like a speedometer on a car but the speedometer sticks at the highest reading for the month.

During summer afternoons, when temperatures are at their highest, building managers crank up the air-conditioning to keep occupants cool and comfortable. Unfortunately, this ramping up of the energy load for cooling during "peak demand" periods puts a strain on electric supplies, causing energy prices to spike up. Commercial energy users are then charged for how much energy was used (kWh) plus charged based on the most energy consumed in any 15 minute period (kW) during the billing month. For example let's assume a commercial electric rate is $0.05 per kWh and the  demand charge is  $12.00 per kW. If the building used 250,000 kWh and the highest kW usage in a month is 1000kW, the  total electric bill would total $24,500, with the demand charge making up $12,000 of it. ($12.00 x 1000/kW).

Utilities can manage peak demand (for now)
Cost savings aren't the only reason to pay attention to peak demand. Blackouts and brownouts can result from overloading the grid with requests for power. Fortunately, according to the North American Electric Reliability Corporation (NERC), North America has sufficient resources to meet daily peak demand throughout the summer. While this is certainly good news, the announcement is saddled down with three unfortunate realities.

1) First and foremost, as mentioned above, energy is most expensive during peak demand periods. So businesses are stuck with paying significantly more to stay cool unless they can use less energy (kWh) and lower they peak energy usage (kW).

2) Second, analysis of current power supplies provides little information regarding the long-term viability of the grid or localized issues. Future blackouts and brownouts are still very likely. States like New York are already releasing predictions for next year and expect peak demand to continue rising, according to the Times Union. Whether or not the New York Independent Service Operator will be ready depends on several factors including how the government prioritizes energy reforms as outlined in the Reforming the Energy Vision initiative. Plus, climate change is already impacting regions around the world. A recent study released in the journal Nature Climate Change argued that 11 states across the western half of the United States will soon have to manage power grids weakened by and vulnerable to climate change unless renewable energy and new efficiency solutions are adopted.

3) Third, the ability to meet peak demand is still dependent on fossil fuel-powered peaker plants to supplement generation in times of extremely high demand. Integrated generation and energy service provider Public Service Enterprise Group (PSE&G) pointed out that peak demand puts extra strain on the power grid. To meet peak demand, utilities must depend on peaker plants. However, peaker facilities are notorious for the large amounts of fossil fuels that they burn, and this inefficient solution could benefit from greater innovation. While renewable energy seems like a natural fit, intermittency issues have prevented wind, solar and hydro power from edging out old fossil fuel solutions. Seeking Alpha noted that, energy storage technology can be used as a means of supplementing renewable generation.

Addressing peak energy demand with energy storage
Thermal energy storage, a behind the meter solution that helps improve the viability of renewables also benefits businesses interested in reducing peak demand to lower energy costs. In fact, PSE&G pointed out in their recent newsletter that thermal energy storage helps use energy more wisely by storing ice at night to cool buildings the next day. With thermal energy storage, businesses can shift their peak energy consumption, caused mainly by air-conditioning. Shifting the cooling loads from peak demand times helps reduce peak demand (kW) costs while also easing demand on the grid.