In this current economic environment, where energy bills constitute a significant portion of operating expenses, one challenge looms large for many businesses – peak demand charges. These charges, often the most costly part of a company’s energy bill, can significantly impact the bottom line.
For large consumers of electricity, including businesses, manufacturing facilities, educational institutions, and more, demand charges can account for a substantial portion of monthly utility costs, often ranging from 30% to a staggering 70% of the total bill. These high charges can be especially burdensome for businesses with erratic or seasonal energy consumption profiles.
What is Peak Demand Shaving?
So, what can companies do to alleviate the weight of these exorbitant charges and achieve a competitive edge in their industry? The answer lies in the practice of “peak shaving.” Peak shaving is a proactive strategy that enables businesses to manage their overall energy demand effectively, thereby reducing the impact of peak demand charges. This strategy works by eliminating short-term spikes in demand, ultimately lowering and smoothing peak loads, and thus, diminishing the overall cost of demand charges.
The most compelling aspect of peak shaving is the transformative role of solar energy combined with commercial solar battery storage. Unlike traditional methods, such as diesel generators or manual equipment shutdown, the marriage of solar and storage systems has become the beacon of hope for businesses seeking significant savings and environmental benefits. Here’s why.
Demystifying Demand Charges
For businesses, energy bills come with a dual cost structure. The first part entails basic energy charges, which represent the total electricity consumed during a billing period. The second part, and often the more significant contributor to costs, is demand charges – the fees associated with the highest level of electricity usage, referred to as “peak demand.”
The challenges associated with demand charges are felt more acutely by businesses in regions with high peak demand rates, which can have a severe impact on their operating costs. In many Midwestern states, such as Iowa, peak demand charges are some of the highest in the nation, putting a significant burden on local businesses.
Eliminating or reducing these costly peak demand charges can be achieved through the clever combination of solar energy and commercial energy storage. These systems, designed to charge batteries when the sun is shining and discharge stored energy during peak usage times, effectively mitigate the impact of demand charges.
The Mechanics of Peak Demand Shaving
Demand charge billing is distinct from consumption charges. Consumption charges are based on the number of kilowatt-hours (kWh) of electricity used within a billing cycle. In contrast, demand charges are calculated based on the highest average load recorded during a specific peak demand interval, typically 15 minutes, in each billing cycle.
These charges are typically expressed as a rate per kilowatt (kW), and the actual demand charge is determined by multiplying the peak demand rate by the peak demand itself. For example, if a business reaches a peak load of 150 kW in a particular month, and the demand fee is $10 per kW, the demand charges for that month would amount to $1,500.
Furthermore, some demand charge tariffs include ratchet clauses, imposing a minimum demand charge throughout the year based on a fraction of the highest peak demand, which can further increase the impact of demand charges, particularly for businesses with seasonal load profiles.
Why Demand Charges Exist
Demand charges serve as a mechanism for utilities to recover costs associated with operating peaking power plants and procuring power from other utilities on the energy spot market. They also help utilities cover the expenses related to transmitting electricity to customers with substantial energy requirements.
To balance their generation capacity with fluctuating customer demand, utilities employ various strategies, such as unvarying power plants, dispatchable generation, peaking power plants, and load-following power plants. These strategies aim to match the base load (lowest level of load) with peak load (highest overall system load) and stabilize the energy supply.
Load profiles provide insights into the patterns of electricity consumption over time. These profiles are depicted graphically and show the fluctuations in demand throughout a day, week, or year. There are different types of load profiles, each reflecting variations in consumption. A daily load profile shows variations in demand within each day, with most days being similar. A seasonal load profile demonstrates variations in demand between seasons, often overshadowing daily or weekly fluctuations. And a weekly load profile exhibits little variation within a day but more variation from one day to another.
The Art of Peak Demand Shaving
Peak shaving is the most effective strategy for managing utility costs for businesses facing high demand charges. By smoothing peak loads and reducing short-term demand spikes, businesses can significantly alleviate the burden of these charges.
Traditional peak shaving methods, such as manual intervention or the use of controllers, have their limitations. They may require businesses to choose between high demand charges and operational efficiency. Additionally, diesel generators, while capable of managing demand charges, come with significant downsides, including pollution and noise.
However, the new energy frontier has arrived in the form of solar combined with battery energy storage. This powerful combination offers businesses a way to guarantee peak shaving without the drawbacks of traditional methods. Battery energy storage systems are dispatchable, utilizing sophisticated control software with learning algorithms that adapt to a customer’s load profile, anticipate peak demand, and switch to stored energy when needed the most.
These systems automatically detect when power usage surpasses a predetermined threshold and switch from the grid or solar panels to batteries. When demand decreases, the batteries recharge, ensuring a seamless and cost-effective solution for peak shaving.
The Future is Bright with Commercial Solar Installation
Solar combined with battery energy storage emerges as the most promising solution for peak shaving, eliminating the downsides associated with other methods. These systems are clean, quiet, and require no active management. They enable businesses to operate efficiently without being burdened by high demand charges. Solar + storage also makes solar energy more accessible, generating additional savings for businesses unrelated to demand charges.
As the National Renewable Energy Laboratory (NREL) and Clean Energy Group attest, solar + storage offers economic benefits to millions of customers across numerous states. In regions like Iowa, where demand charges are notably high, this innovative solution empowers manufacturers to take control of their demand charges and reduce operating costs.
The path to energy cost savings and environmental responsibility is clear. Solar combined with battery energy storage is revolutionizing the way businesses manage peak demand, paving the way for a brighter and more sustainable future. Don’t miss the opportunity to unlock the power of peak shaving and gain a competitive edge in the world of commerce.
We are seasoned commercial solar contractors in Houston, TX. We have years of experience helping businesses make the switch to solar. Reach out today.
