What’s a Utility Demand Charge and How Commercial Solar Can Help

February 13th, 2014 |
If you’re an operations manager of a commercial building or industrial facility, then you probably know that a major portion of your monthly bill can come from so-called “demand charges.” The good news is that installing solar can bite a good chunk off those charges, and combining solar with new energy storage technology can deliver even more savings.

What are Demand Charges?

In general, demand charges are billed to commercial and industrial electric customers who use a spike of energy at some point during peak times when utilities have to purchase or produce extra power to meet the extra demand of the entire grid.

For example, a large-scale retailer or grocery store may need to turn up their HVAC air conditioning at around noon, causing a spike in their energy usage. Or you may manage an industrial facility that switches on more machines at the start of a shift at 8am. Or perhaps you’re an amusement park that turns on all the rides at 10 am and then all of the park’s lights at dusk.

In all of these cases, the utility will likely bill you some type of demand charge. How much you’ll be charged will depend on your utility’s rate structure, the time of day, and sometimes the time of year.

A common demand rate structure will charge you a certain rate multiplied by your maximum kW used within a 15-minute time period during the monthly billing cycle. So, if you’re normally operating under 100kW throughout the day, but one day switched on your extra HVAC at 11am and spiking your usage to 250 kW within a 15 minute time frame, then regardless of whether you went above 100kW again, you might be charged between $2000-$3000 in demand charges that month. With some utilities, you may have that same extra charge for another 12 months, even if you don’t go above 100kW again!

And keep in mind that demand charges are always in addition to the cost of your total kilowatt-hour (kWH) usage for the month and that this kWh rate will often vary by the time of day and your utility. Bottom line, the more electricity that your operations use during peak times, the higher your utility bill will be.

The First Step: Get a Comprehensive Energy Analysis

Clearly, demand charges are complicated, so any quality solar installer must provide a comprehensive analysis of your bill. When a solar installer understands not only your rate structure, but also your usage and when it peaks into demand charge territory, only then can cost-saving solar and energy efficiency solutions be proposed.

Consequently, the first part of the solution is analyzing your daily electric usage and making sure that you’re in the most optimal utility rate. Often businesses have a choice for rate structures, and you may have unknowingly defaulted into a utility rate that is more expensive, given your total kWh usage and peak usage.

Another part of the solution may involve energy efficiency. Can a more efficient, smarter, HVAC system reduce those demand spikes? Will switching to LED or florescent lighting significantly decrease your overall needs? Simply painting your facility’s roof white can also lower your heat gain, reducing your HVAC needs.

Step Two: The Solar Solution

Once the efficiency measures and their benefits are analyzed with your bill, then the solar installer can propose an optimally sized solar system that matches your rate structure, your peak usage times, and your solar potential.

For those facilities generating peak demand charges during the heart of the day, a solar system may be the only solution needed, as your solar production will generally match daytime peaks and potentially eliminate them.

A cloudy or rainy day may inadvertently bring back the demand charges, but a comprehensive solar analysis and proposal should account for these when presenting your ROI and savings.

Smart Commercial Solar: The Solar + Energy Storage Solution

In some cases, solar alone may not be as effective. If your facility’s peak usage spikes at 8am before peak solar production, or in the evening at 5pm after peak solar production, then the demand charges will probably be unaffected, despite a reduction of your overall kWh usage due to the solar installation.

Fortunately, new cost-effective battery technology and energy management software combined with solar systems have created a new solution for greater reliability in offsetting demand charges.

With these new “smart” solar systems, the solar panels charge batteries for later usage, while sophisticated energy management software monitors your facility’s peak usage. When your facility’s electricity usage spikes, the energy management software is ready and draws energy from the batteries instead of the grid. When your solar panels aren’t charging the batteries, they’re offsetting your normal daytime power needs.

As for upfront costs, these new solar and storage systems can also be financed using solar power purchase agreements (solar PPA’s) or solar leases that minimize or eliminate any upfront costs while still providing significant utility and demand charge savings over the course of 15 to 20 years.

REC Solar is one of the leaders in commercial solar solutions for reducing demand charges. We not only have 17 years of solar experience, but also the comprehensive analytical tools to discover the most cost-effective stand alone solar or solar plus energy storage solutions for your facility.

Contact us, and we’ll start the process of analyzing your bill’s demand charges and presenting a detailed financial analysis of the costs and ROI of a solar solution or a solar with storage solution.

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