How to Lower Commercial Electricity Demand Charges

A recent report from the National Renewable Energy Lab (NREL) shows that millions of commercial and industrial customers pay demand charges of over $15/kW.

In a world where every cost-saving measure seems to have been exhausted, most business owners are unaware of the savings they could create by understanding what demand charges are and how they can take actions to mitigate them with energy storage. In fact, utility demand charges can account for between 30 and 70 percent of a commercial and industrial customer’s electricity bill.

What are Demand Charges?

Traditionally, commercial customers’ electricity bills are separated by energy consumption and energy demand.

Energy consumption is calculated by multiplying the current price of energy during the billing period ($/kWh) with the amount of energy consumed (kWh). Alternatively, energy demand is calculated by multiplying the maximum amount of power used over a specific interval (kW) during the billing period with the relevant demand charge ($/kW).

“X kW of demand * Y $/kW = $ Monthly Demand Charge”

Another way to look at it is that demand charges reflect the peak power demand (kW) during the month, as opposed to the amount of energy (kWh) used over the course of the month.

Why are Demand Charge Used by Utilities?

Utilities are expected and responsible for providing the maximum amount of power that a customer might need at any time. That means if your business needs a certain amount of power at one point during the month, the company must be prepared to provide that power at any point you demand it.

However, the need for demand charges arises when you consider the difficulty of satisfying each and every customer’s power needs. This can occur at certain times of the day when everyone likely to be using power or during weather-related incidents such as heat waves. As such, utilities must keep a substantial amount of transformers, substations and additional equipment “on deck” to meet this demand. The demand charges help to mitigate the cost and maintenance of this equipment.

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How to Lower Your Electricity Costs

As you’ve seen above, being mindful of your demand charges and understanding how to lower your peak demand needs can be a quick way to generate savings. Another avenue to explore is rescheduling your company’s most energy-intensive operations to off-peak times of the day. Both of these can be a great way to reduce demand charges and balance out your electricity usage.

If you are unable to shift your facility’s energy consumption, demand charges can be reduced with the addition of renewable energy–typically solar—and energy storage.

First, a solar commercial system can be a great way to reduce demand charges—especially if you’re generating energy from the sun during peak usage hours. However, if a demand spike happens when the solar system is not operating—an example being during nighttime hours or cloud coverage—then it can trigger the same demand charges as if the system hadn’t been installed.

This is where energy storage systems really shine and harness the power you’ve generated in an incredibly cost-effective manner. With an energy storage system, you capture the energy you’ve generated via renewables such as solar or wind and use battery storage to store and use the energy when it is most valuable to the owner.

Then, during times of high demand when you would typically incur those costly demand charges, you instead rely on your energy storage system to power your operation—thus, flattening your energy consumption during those peak time periods and ultimately paying less in monthly demand charges.

Energy Storage system software is a key factor here. Advanced platforms use “learning algorithms” to gauge when a facility is approaching peak demand to shift energy consumption to battery power to mitigate demand charges. Add solar and the management software can employ a more sophisticated demand management strategy.

Additional value streams can be derived from an installed energy storage system as well. It can be used to provide valuable battery backup power in the event of a grid outage, avoiding costly downtime and spoilage

When used in combination, solar and energy storage can save your business thousands and thousands of dollars per year in electricity costs and downtime.

The Dynapower Solution

At Dynapower, we have been producing purpose-built solutions in power conversion and energy storage since 1963. Our vast array of products–which include energy storage systems, inverters, DC converters, rectifiers and custom transformers–are designed and built in our 150,000 square foot vertically integrated facility right here in South Burlington, Vermont.

Our behind-the-meter energy storage systems are the perfect solution for implementing the suggestions above and generating demand charge savings. Our systems are able to economize energy costs while boosting efficiency—by shaving energy during low-use periods and offering extra energy during high-use periods.

Dynapower’s fully integrated MPS®-i125 EHV energy storage system and MPS® series of behind-the-meter energy storage inverters are ideal for C&I customers with their ease of integration, low acoustic footprint, and compact size.

Additionally, our behind-the-meter systems also offer seamless backup power distribution through our patented Dynamic Transfer technology. Ultimately, project developers and energy storage system integrators rely on Dynapower’s energy storage solutions for C&I projects to lower energy costs and reduce demand charges.