- Energy consumption: the amount of energy (kWh) utilized during the billing period multiplied by the relevant energy price ($/kWh).
- Demand: the greatest amount of power (kW) drawn during the billing period for any specific time interval (usually 15 minutes), multiplied by the corresponding demand fee ($/kW).
If you want to effectively communicate the value that a solar installation will give to a commercial customer, you must first understand demand charges and how they affect your client’s energy bill as a solar specialist.
A customer’s demand (measured in kW) is a measurement of how much power they consume at any particular time. Demand charges are applied by utilities based on the largest amount of electricity utilized by a customer in any interval (usually 15 minutes) throughout the billing cycle. Commercial and industrial clients typically pay demand charges because they have larger peak loads (i.e., peak power consumption) than residential customers. Most utility rates define a customer’s maximum power demand; exceeding the maximum power demand for several months can result in a switch to a different rate with higher demand costs.
Demand charges are applied by utilities based on the largest amount of electricity utilized by a customer in any interval (usually 15 minutes) throughout the billing cycle.
The maximum power demand is multiplied by the demand charge rate of the prevailing utility rate to determine the demand fee for a given month. While each utility’s billing method is different, some tariffs incorporate numerous types of demand charges, with greater charges during peak demand hours and reduced prices during “partial-peak” or “off-peak” hours (time of use rates). Demand charges can add a significant amount to monthly electric bills for consumers whose utility rates include them.
Let’s look at how demand charges are calculated in practice. The following is the basic formula for calculating demand:
If the utility charges $9.91 per kW for demand charges and the client has a peak demand of 500 kW for the month (representing the 15-minute period when they consumed electricity at their greatest rate), the demand fee is calculated as follows:
Different demand rates at different periods may be included in more intricate rate systems (for instance peak and off-peak hours). For example, from November to March, a utility might define on-peak hours as 6 a.m. to 10 a.m. and 6 p.m. to 10 p.m., and from midday to 9 p.m. from April to October. Demand is $7.13 per kW during peak hours and $4.94 per kW during off-peak hours. During peak hours in January, the customer’s maximum demand was 500 kW. During off-peak hours, their maximum demand was 150 kW.
Based on sample Green Button Data imported into Aurora Solar’s solar design and sales software, an example of a (different) commercial customer’s monthly energy consumption (orange) and bills (blue); the portion of the bill composed of demand charges is shown in light blue.
When it comes to consumption costs, the impact of solar is rather straightforward: by producing power from a solar installation, a commercial customer can reduce the amount of energy they must buy from the utility, lowering utility bills.
Solar does not, unfortunately, give continuous cost reductions when it comes to demand charges. Because solar energy production varies depending on weather and time of day, periods of high solar power will not always coincide with peak power consumption for a building. As a result, solar consumers cannot rely on their solar systems to lower demand costs. A chance rainstorm at a time when the facility is using the most electricity during the month would result in a demand fee comparable to what it would have been before solar was installed.
Regardless, understanding this piece of the customer’s bill is critical in determining what portion of the customer’s costs solar can offset.
Demand charges are in place to encourage customers to spread their energy consumption out over time. This is due to the fact that utilities must maintain sufficient generating and distribution capacity to meet the needs of all customers during the times when the grid is most heavily used (such as a hot day when most customers are using air conditioning). This means that a substantial quantity of expensive equipment, such as power plants, must be kept on standby for these infrequent moments of high demand. Customers who use a lot of power for a short period of time contribute more to the expenses of creating and maintaining the essential infrastructure during peak times through demand charges.
Samuel Insull, a colleague of Thomas Edison and a key actor in the extension of electricity access in the United States, originally proposed demand charges in the early 1900s. Since then, they’ve been a popular method for commercial electricity invoicing.
Fidel Marquez, a senior vice president with ComEd, summarized the utility’s rationale for demand charges as a way to save money in comments to Midwest Energy News about a proposal to apply demand charges to residential customers in Illinois in 2015 “correct any inequities that may arise as a result of low-usage customers subsidizing high-usage customers.” He went on to say that “Customers’ demand drives the cost of supplying electricity, and ComEd constructs and maintains its delivery system poles, wires, and transformers to handle everyone’s maximum demand for power.”
However, there are differing viewpoints on the efficacy of demand charges as a means of reducing peak demand on the grid, with some pro-solar organizations arguing that demand charges are detrimental to solar’s value proposition.
Demand charges are here to stay, regardless of the reasons for them or how effective they are, so it’s critical to understand how they function. Understanding demand charges allows solar installers and customers to accurately estimate how much of a monthly bill can be offset by solar and gives them a starting point for looking into other ways to reduce peak demand.
- Demand charges are costs added to commercial and industrial customers’ electric bills based on the maximum amount of power used in any (usually 15-minute) interval throughout the billing period.
- Demand charges can account for a large amount of a commercial customer’s bill.
- Although both have the same monthly energy use, we may expect the aeronautical research center to have a larger monthly bill than the factory in the example from the beginning. Because its peak demand is much higher, the aeronautical research center will have significantly higher demand charges.
- Solar can save both institutions money by lowering their energy usage, but it won’t save the aerospace research facility nearly as much because solar can’t reliably lower demand costs.
What is the definition of demand reading?
Three five-minute subintervals make up the 15-minute demand interval. To determine the 15 minute billing demand, the meter estimates the average load in each 5 minute subinterval as well as the average of the three 5 minute subintervals. The demand is adjusted every 5 minutes, hence the name “rolling block.” Refer to Diagram B.
The demand peak is reset each month, and the demand reading is displayed directly on the display. Your KWh reading is reading code 001, while your KW reading is reading code 002. (the KW reading will have a decimal point).
What does “demand” in an electrical bill mean?
Demand charges are fees charged by utilities to non-residential and commercial customers in order to maintain a steady supply of electricity. These costs can add up to a significant amount of money on a business’s monthly electric bill. They can account for up to 50% of the total electric cost, if not more. Demand charges can sometimes be more expensive than the energy element of your power bill. As a result, the monthly electricity bill for a business is determined not only by the amount of electricity consumed throughout the month, but also by the rate at which it was consumed. The following is a definition of demand:
The maximum quantity of energy consumed by a company during a billing period.
Let’s pretend we have two five-gallon buckets to demonstrate this concept (see graph below). We fill each bucket to the brim with water. Bucket one was filled at a rate of one gallon per minute, while bucket two was filled at a rate of five gallons per minute. Despite the fact that we used the same exact amount of water to fill each bucket, bucket number one took five times longer to fill than bucket number two. In other words, demand for bucket number two was five times more than demand for bucket number one. In the case of electricity usage, this is an analogy for how demand and demand charges work. Consider it in terms of gallons per minute per minute of time. Or, per unit of time, kilowatt hours (kW-hrs).
The amount of electricity consumed is indicated in kW-hours. Every 15 minutes, the electric provider examines your power consumption at predetermined intervals. The unit of measurement for how much electricity is utilized and at what rate is kilowatts (kWs). As a result, the Demand is also measured in kWs. For each kW of Demand that occurred in that month, the electric provider charges its commercial customers a particular amount of money. The maximum point of consumption for a given month is called demand. So, if a utility charges $24 per kW demand charge and the monthly usage is 100 kW, the demand charge for that month will be $2,400, which will appear on the electric bill.
As you can see, calculating demand charges is a difficult task. Not to add, there are other types of demand charges, each with its own set of prices. These are the following:
As if that wasn’t enough, there’s also a “The greatest demand for the month, regardless of when it happened, is defined as a “non-coincidental” demand fee.
A business organization must be able to reduce demand charges by being able to “control” their electricity use This can be accomplished by identifying peak demand periods and attempting to avoid them “By shifting electrical demand to different times of the day, you can “soften” the load. Solar electric power generation is a viable option for meeting this objective. Electricity consumption demand can be high “shifted” to the daytime when solar power is generated, which reduces grid usage and thus demand charges.
This is an obviously complex and significant topic, which we will try to cover in more detail in future blog entries here at Cosmic Solar.
In the next article, we’ll look at how solar can help you save money on demand charges. We’ll also look at a real-world example to show some of the problems and complexities of lowering demand charges with the real-world solar energy solutions that Cosmic Solar provides.
What is the formula for calculating electricity demand?
Demand charges are derived by multiplying the current per kW rate by the highest 15-minute interval of power consumption throughout the billing cycle. As a point of comparison, United Power’s average household demand is 7 kW.
What does it mean to use energy on demand?
For the past few years, electric energy prices have risen at a fairly consistent rate, and additional rate hikes are expected in the future.
If you’ve ever looked over your utility bills, you’ve probably seen that consumption and demand charges account for the majority of your entire expenditure.
The demand charge can sometimes exceed the consumption price, and the demand charge can account for approximately half of the total cost.
As a result, it’s a good idea to learn how energy consumption and demand charges are calculated so you can figure out the best ways to reduce both and save money for your company.
Electricity is Energy, But Knowledge is Power
This blog post will focus on the two most significant charges on most commercial electric utility bills: consumption (measured in kWh) and demand (measured in kWh) (measured in kW).
It’s simple to understand and compute your electric usage charge. The unit of measurement for consumption is the kilowatt-hour (kWh) (kilowatt hours). This is a figure that represents how much energy you used throughout the billing month. The cost of a kWh varies greatly. You could spend as low as $0.03 per kWh or as much as $0.30 per kWh or more depending on your geographic region and utility rate plan.
Demand is a more complicated topic. The amount of electrical power that must be generated at any particular time is referred to as demand by the electric utility. To put it another way, the utility must be able to deliver enough power at any moment during the day to meet the needs of all of its customers. As demand grows, more power sources must be sought, which can be quite costly. Typically, this cost is passed on to the utility’s customers. Demand, in the eyes of the consumer, refers to how quickly and efficiently you utilize energy.
In kW, the rate at which you utilize electricity is measured (kilowatts).
As HVAC cycles, lighting, and other loads are turned on and off, your demand will fluctuate from minute to minute.
The average amount of power you use in a 15-minute period is commonly used to calculate demand.
Very small bursts of demand, such as those caused by electric motors turning on, will have little impact on the average 15-minute demand.
Longer periods of demand, on the other hand, will have a significant influence.
For example, leaving a powerful electric motor (such as a kitchen exhaust fan) running all the time will significantly increase your 15-minute demand.
The demand unit cost (kW) is always substantially higher than the consumption unit cost (kWh).
The cost of use is usually a few cents per kWh.
Typically, demand is charged at a rate of a few to several dollars per kW.
Demand charges just doubled this monthly bill
A factor known as power factor might also have an impact on your demand charge. The power factor of your site is a measurement of how efficiently it consumes electrical energy. If your equipment is inefficient with energy, it will have a low power factor, which means the electric company will need to bring additional generation capacity online to meet your needs. Your power factor measurement can be seen on many electric bills. A percentage is used to represent the power factor. A 100 percent power factor indicates that your equipment is operating at maximum efficiency. For power factors below 90%, utilities normally apply a multiplier to your demand fee. 1.2 to 1.5 power factor multipliers are typical.
If your building uses energy at a low power factor your bill will increase
Finally, on your bill, you may notice two forms of demand: real demand and billing demand. Actual demand refers to the greatest actual average 15-minute demand measured during the billing period. The billing demand is the greatest 15-minute demand recorded at your location in the previous month. The higher of these two numbers could be invoiced to you each month. A factor known as demand ratchet is used in bills that reflect both real and billing demand. Simply put, if you use a lot more electricity in one month say, in July in Miami the highest average 15-minute demand for that month will be billed for July and the next 11 months, even though actual demand is lower in subsequent months. The only exception to this rule is if your actual demand in a subsequent month for example, August in Miami was higher than the July demand, in which case the demand that would be billed for August would be increased to that higher number and used as the billing demand for the following 11 months, regardless of your actual demand. You’ll be locked into your greatest demand for 12 months if your rate contains a demand ratchet (some utilities use 6 months, some others use 18 months, but most ratchet plans use 12 months). Managing your demand is usually a smart idea, but it’s especially important when you’re dealing with a demand ratchet.
Is there a correlation between demand and price?
According to the law of demand, the greater the price of a good, the fewer people will demand it if all other things remain constant. In other words, the lower the amount requested, the greater the price.
What is an example of demand?
If cinema tickets were $3 each, for example, demand for movies would almost certainly increase. Demand will rise as long as the value of going to the movies outweighs the $3 price. For the time being, demand for tickets will diminish as soon as consumers are happy that they have watched enough movies.
What can be done to lower demand charges?
Many electric companies offer demand fee reduction, offset, or elimination programs. The majority of these schemes require you to consent to the utility company managing your loads during peak hours. During peak times, a chicken farmer, for example, may be obliged to use his diesel generators rather than rely on the utility provider for power.
During peak periods, these schemes assist utility providers in lowering their expenses. These initiatives could be advantageous and cost-effective for your company if you have the ability to switch to a different energy source during busy hours.
Invest in a solar panel system
If the majority of your power use occurs during the day, a solar panel system can help you save money on demand charges.
A solar system uses the sun to generate electricity, allowing your company to use solar-generated electricity rather than utility-generated electricity. If, on the other hand, your demand spikes on a cloudy day or in the evening, you will be charged demand charges.
Invest in an energy storage solution
Investing in a battery storage solution allows you to store energy generated by your solar system for usage during peak times or anytime you see a surge in energy demand.
Energy storage solutions are an excellent method to lower demand costs, but they require a significant upfront investment as well as regular maintenance.
Do you need assistance lowering your demand charges? Our solar professionals are standing by to assist you. We’ll examine your demand analysis and assist you in determining the most cost-effective option.
What is the maximum electricity demand?
Customers of all types must discover new ways to cut their electricity bills as the price of electricity continues to rise. To do this, we are introducing the MDC series, a new power management technology that controls maximum demand (MDC 4 and MDC 20).
How to understand the electricity bill
To determine where we might act to minimize an electrical bill, we must first comprehend the many phrases that appear on it. The most essential notions are active energy term, reactive energy term, and, in some countries, maximum demand term, the latter of which is the focus of this article.
Register of maximum demand (kW or kVA). This is the highest power value obtained throughout the billing period, usually an average of 15 minutes (this average time may vary depending on the country). The consumer will be charged a penalty on their electricity bill if the value is more than the contractual power.
Consumption of reactive energy (kVArh), with various tariffs and rates applied. The user will be penalized depending on the cos value (this penalty is not applied in all countries)
Maximum demand calculation
The maximum demand value is calculated by averaging the instantaneous power (in kW or kVA) over a set period of time, usually 15 minutes (this time interval will depend on each country). This parameter can be calculated in a variety of ways:
This is a calculation of the maximum demand over a certain time period (usually every 15 minutes). The value is stored when the data is acquired, and the clock is reset to begin a new calculation for the next 15 minutes. Every hour, these four registers will be measured.
This is a calculation of the maximum demand over a certain time period (usually every 15 minutes). It will wait one minute after getting the data before starting a new 15-minute calculation (this time may vary depending on the country). This means that it will record one maximum demand figure from the previous 15-minute period per minute (depending on the meter). Every hour, the 60 registers will be measured.
What can we do to avoid maximum demand penalties on the electricity bill?
We must ensure that this value never exceeds contractual power to avoid penalties for maximum demand.
The highest maximum demand value recorded by the meter is usually compared to the contractual power in electricity bills. There will be an economic penalty if this value is higher than the contractual power. As a result, if the customer’s power usage exceeds the agreed amount for 15 minutes throughout the billing month, the customer will be charged a penalty, even if it happens just once a month (one month has approximately 2880 fifteen-minute periods).
In the case of Spain, depending on the maximum demand value, the penalty can result in a large rise in bill, as seen in the graph below:
If the contracted power exceeds the maximum demand term, the maximum demand term will grow (Spain- for tariffs 3.0 and 3.1)
If the maximum demand value surpasses 10% of the contracted power, the customer will pay a 20% increase on the maximum demand term, as illustrated in the graph. If the maximum demand value is greater than 20% of the contracted power, the user will be charged a 50% premium on the maximum demand period.