Era of Peak Demand Management

Electric utilities around the country are beginning to introduce a new component of billing for its end users – the demand charge. Now it was not uncommon in your bill to find some small demand based [kW] charges for transmission and/or distribution but these were small charges on the order of a few dollars or less per kW. We are all familiar with the standard kilowatt-hour based, or KWH, energy charges from the utility. KWH represents the actual power used at a facility, a measure of electrical consumption. Utilities have used many different types of rate plans to encourage and incentivize certain behavior. There are tiered plans which increase rates with higher consumption to encourage lower overall usage and Time-of-Use (TOU) plans that have higher rates during peak times to encourage customers to shift load to off-peak periods where rates are significantly cheaper. The common thread in all of these plans is they charge on one component: Energy (KWH), and bundled within the price of energy are fixed costs burdened on the Utility such as transmission, distribution, and delivery – all costs to the Utility outside of the actual cost to produce a single KWH. Today, in markets where the grid’s system loads are nearing their capacities, or where intermittent renewable generation is significant, some utilities have to carefully manage the availability and generation of power plants in order to meet an increasingly intermittent and dynamic grid loads. Utilities are now unbundling billing structures to better reflect the actual cost of serving their customers. As a result, some end users are now charged based on peak demand (kW) and energy usage (kWh) and some utilities are putting a lot of emphasis on the demand component.

What is Peak Demand Management? Peak Demand Management is the strategy of precisely operating and controlling a facilities energy loads in such a way to limit the maximum demand metered by a Utility for the purpose of limiting demand charges. There are various technologies and strategies for implementing demand reduction measures; however, Peak Demand Management typically entails some combination of automated controls and equipment, power monitoring, and software analytics.

Why Peak Demand Management? Utilities are putting a higher price on demand while significantly reducing energy charges. As a result, energy bills are becoming more and more weighted by demand charges. Not only can the demand charge rates be quite aggressive on the order of $15-$20 per kW or higher, but the billed KW does not have to be the actual peak demand in the current billing month. It is common that the billed KW is set to the highest peak demand from the previous summer or the previous 12 months. This is commonly referred to as a “Demand Ratchet”. So not only are customers paying a premium for KW each month but they are paying based on their highest kW from the past 12 months. Assuming a $15 per kW demand charge, a 200 kW reduction would result in $36,000 cost reduction per year. 

Who can benefit from Peak Demand Management? Clearly the first requirement is that the customer needs to be in an environment where the utilities are imposing significant demand charges. Arizona Public Service (APS) is the first utility in the state to adopt significant demand charges for its General Service commercial rate plans. Every customer likely has an opportunity to optimize their peak demands; however, customers who have high variable loads (I.e. HVAC-cooling loads) between occupied and unoccupied times and also have Building Management Systems (BMS) or Energy Management Systems (EMS) stand to have the best opportunity for achieving peak demand savings. Customers who have onsite solar generation will also have a great opportunity for demand charge savings since the displacement of energy during the middle of the day tends to leave sharp peaks in the early morning and in the late afternoon. Customers with this type of profile have utility bills that are dominated by demand charges since solar can only effectly offset the KWH energy purchased but in most cases does not reduce the peak  demands. 

When should you be doing Peak Demand Management? All the time. Customers who are imposed a demand ratchet should be conscientious about their consumption because it is possible within a single 15-minute interval that a new peak could be set which will carry with you for potentially the next year. Although it depends on the specific rate plans whether or not the peak demand is imposed for the current billing month or if it sets a new Demand Ratchet. In the APS E-32 Large general service rate plan, the demand ratchet is set in the summer months (May – October); this is an extremely crucial period for Peak Demand Management. It is ideal for any new strategies to be fully implemented and tested prior to the summer season because any slip in peak demand mitigation after May 1st will set the demand ratchet until following year in May. 

How does one implement Peak Demand Management? It is not hard to understand how peak demands occur; that is when you have several major pieces of equipment operating at the same time. For example, in your home the AC unit is running along with the washer, dryer, dishwater, and vacuum cleaner; the demand is going to be through the roof – significantly higher than your average consumption. Obviously, the simple solution is to alternate usage of equipment as much as possible to smooth the demand. On a commercial scale the concept is the same but the amount of flexibility is a bit more constrained. During occupied business hours, it is unacceptable to turn off any equipment vital to day-to-day business operations; nor sacrifice climate comfort. However, there are processes that can be performed within normal business operations that can limit demand. It is common for peaks to occur during scheduling transitions. For example, during morning start-ups, all of the HVAC systems come online to bring the building to set-points. In the summer, this means that all packaged AC units are running and/or chillers are coming online at or near full load. In the winter, this could be electric strip heating coming online, which in some cases could exceed the peak summer demands. By staggering the start-up of equipment and starting the process earlier could immediately mitigate this issue. However, to optimize and significantly reduce the risk of “slipping up”, Peak Demand Management should be automated and safeguarded through EMS and BMS systems in order to synchronize all controllable equipment and have built-in interlocks to prevent coincident operation of equipment. Power monitoring equipment can be integrated to enable real time load shedding if peak demand limits are being threatened. EMS systems can also use analytics to characterize building load demands and deploy subtle set point manipulation to leverage the natural thermal storage of the building and HVAC systems. For facilities that have solar, these analytics can leverage solar generation in the middle of the day to increase cooling output to smooth demand in the afternoons. Beyond load-side demand management, peak demand management can be taken to the next level through additional energy storage such as battery energy storage, chilled water storage, or even ice energy storage. With the increase in demand charges in today’s utility environment, these measures are becoming more and more cost effective and those customers who implement Peak Demand Management into their energy strategies will win in the long run and achieve significant energy costs reductions.