Avoiding Demand Charges

As a commercial customer, you may have noticed that your electricity bill can vary wildly from month to month — sometimes with no obvious explanation. The answer is sure to be Demand Charges.

There are many types of charge on your utility bill, but the two that really impact your bottom line are in fact the ones that you can do something about.

The Energy Charge is simply the energy you use, calculated by multiplying your total energy use for the month by your energy rate, measured in kilowatt-hours (kWh).

The Demand Charge is the peak or largest amount of power you use in a month, measured in kilowatts (kW). The kW level is set by the utility, and critically, you only need to hit that kW level once, even for a moment, to trigger the demand charge.

For example, a Demand Charge level may be set 10 kW and cost $8.50 per kW. If you hit the 10 kW level once during the month, then you will incur a Demand Change of $85 (10 x $8.50 = $85).

The only way to avoid a Demand Charge is to keep your usage below the established kW level for the entire month

There are a number of strategies for avoiding demand charges.

1) Manage energy usage is the often the easiest and certainly the cheapest way to avoid incurring a Demand Charge.

  • Start with power conservation by simply not wasting electricity. This lowers the base load on your building and makes it harder to hit the Demand Charge level rate.
  • Install energy efficient equipment, lights, PC’s, motors.
  • Ensure everything is well maintained and running smoothly because maintenance has a huge impact on efficiency.
  • Ensure equipment is appropriately sized, as oversized equipment draws more power than necessary.
  • Review equipment start-ups and schedules, and avoid having major equipment pulling power at the same time.
  • Alerts and delayed usage enable delaying usage of a particular piece of equipment until the base load of the building has diminished. If this is fully automated, this type of system can shut down equipment temporarily or not allow it to start, if doing so is likely to incur a Demand Change.

2) Invest in renewable generation as this can cut your building’s load and make it harder to hit the Demand Charge level rate. It’s worth remembering that renewable energy generation does fluctuate, so it may fail to generate sufficient power just at the moment of maximum load. On-site renewable energy generation will certainly reduce your energy charge, but not necessarily protect you from incurring a Demand Charge.

3) Install an energy storage system solution as this approach can maintain smooth business operations, free from managed interruptions, to avoid Demand Charges. Energy storage enable discharge of power when you need it, rather than pulling additional energy off the grid. This is most effective when combined with an on-site renewable energy system, like solar PV, which produces electricity that can be stored for later use.

For more information on how to avoid Demand Charges, contact us for a free initial assessment.