By Chris Hart, Manager of Engineering & Analytics
This is the final part in a three-part series on Demand Charges. In the first installment, we covered the basics of “demand” and “demand charge” concepts in an electric rate structure. In the next section, we addressed how solar a generation system can be used to reduce the demand charge portion of your electric bill, as well as some of the inherent challenges with that strategy. In this installment, we’ll look at other ways that you can reduce your demand charges.
The most basic way to reduce your demand charges (as well as energy charges, for that matter) is by using less energy! Energy efficiency should be one of the first strategies for any building or property owner who is looking to save on their utility bills. Energy efficiency upgrades can be as simple as changing out inefficient light bulbs for newer models, or as in-depth as a full building retrofit. Perhaps the most dramatic example of this is the recent renovation of the Empire State Building, which is predicted to reduce annual energy use by 38% and save over $4M per year:
Some typical energy efficiency upgrades are better insulation, updated windows, more efficient Heating, Ventilation, and Air Conditioning (HVAC) systems, better control of HVAC to reflect more granular usage patterns, and plug load reduction.
Another strategy for reducing demand charges is to work with your utility to find a more advantageous rate structure. Time-of-use rate structures tend to charge more for energy and less for power (demand), which can be advantageous if you have installed solar. A building’s specific rate structure is often determined based on its energy usage and power demand, so switching rates is not as simple as picking an alternative – a thorough analysis of your particular usage pattern and available rate structure is required. However, since more utilities are offering rates with time-of-use rates and lower demand charges (both advantageous for solar), it is worth asking your utility representative. If changing rate structures is not allowed by the utility, another strategy is to shift load to off-peak hours. Load-shifting entails moving energy-intensive activities to off-peak hours. While not actually a form of energy efficiency, by using energy during off-peak hours, demand charges (and energy charges, if off-peak energy rates are cheaper) can be significantly reduced.
Of all the potential strategies, the reduction of demand charge through on-site battery storage is perhaps the most relevant to this blog series. Batteries can be used either with or without solar to reduce demand. However, there can be synergistic benefits to installing battery storage in conjunction with solar. If installed and then charged using (only) the solar energy, the batteries are eligible for the 30% federal investment tax credit – a significant boon to project economics. However, if the batteries are charged using grid energy, some (or all) of the 30% tax credit received for the batteries can be forfeited.
Batteries can reduce demand in essentially two different ways. First, they can help smooth out brief drops in solar energy production (if, say, a cloud briefly passed overhead). This can be seen in the figure below at around 8am. The more important way batteries are used is during times of peak demand to reduce peak charges. In the case seen below, the battery is being used to shift the demand from peak hours to partial peak hours, when demand charges are significantly less.
The figure below is a perfect example of shifting demand away from peak times. The red line shows what the building demand would be if only a solar system is installed. The highest demand during peak hours occurs at 6pm and is ~85kW. The blue line shows the building’s demand from the grid with solar AND a small battery backup system. At around 5:30pm, the battery discharges and the building demand holds steady at ~65kW until just after 6pm. This 20kW savings in demand during peak hours would be worth $16.78/kW on PG&E’s E-19S electricity rate, representing a $335.60 savings. Note that the blue line actually goes above the red line after 6pm. That’s because, for about an hour after 6pm, the solar system’s electricity is no longer being used to offset building usage, but is being used to recharge the battery system. In theory, this could result in a “penalty”, by increasing the part peak demand charge. Fortunately, there is no penalty for this particular day, because the time of part-peak maximum occurs closer to 9pm, long after the “just solar” and the “solar and battery” scenarios have converged.
Hopefully over the course of this series, you have learned some basics about demand charge and how it fits into the world of solar. If you have questions about your demand charges, electric bills, or any facet of how solar can affect your business, please contact firstname.lastname@example.org.