Peak Demand Reductions Critical to Controlling Costs

Your operations – whether you manage one or several office buildings or industrial facilities – depend on electricity. You don’t have electricity, your company does not function. It’s as simple as that. Whether at home or at work, we are used to paying for electricity by how much we use (kilowatt-hours, kWh). Makes sense; you use it, you pay for it. But a new financial paradigm is impacting electricity cost and that is peak demand. On a hot summer day (and climate change will result in more such hot summer days), there is growing demand for electricity (in kW) as more buildings are being operated, with more space being air conditioned, plus more lights, laptops, and other electricity-using devices. Utilities know that reliability – getting electricity delivered in full – is expected. To reliably get electricity to all customers at all times utilities must grow their infrastructure, costing hundreds of millions of dollars or more annually – an expense that is difficult to recover. Also, with a number of coal-fired power plants being shut down at least in part because of stricter environmental and potential future greenhouse gas rules and nuclear plants shutting down because of age (and the high cost to build new plants), new electricity generation to meet peak demand may not be assured.

Therefore, there is a growing realization by utilities that it must get its customers to reduce peak demand, that period of just a few hours on a hot summer afternoon when demand is greatest. More utilities around the nation are encouraging customers to reduce peak demand to ensure complete electricity delivery and reduce the risk of a blackout, and are offering customers incentives to achieve real reductions.

In many parts of the US, facilities pay both usage and peak demand charges. The peak demand is based on the single 15- or 30-minute period during the month when you use the most electricity. It may be an outlier of your typical usage, but you are charged for it. Your goal is not only to reduce total usage, but also “shed” load during peak periods.

Many facilities are wisely looking into renewable energy to reduce electricity costs. This is terrific. If you can generate your own electricity and use less from the grid, you will save money. This is true, but only on the usage side. What if there is a single 15-minute period during a month when it is hot, your building is fully using all its laptops, AC, and lights, but it is cloudy (a thunderstorm coming) and your solar panels are not producing any electricity. Despite your solar investment, your demand from the grid for that short period will still be high and you would have to be pay the full high demand charge. Therefore, should you be considering the installation of solar PV or wind turbines, make sure to consider the existing demand charge as something that may not be reduced. Perhaps you can negotiate with your utility to reduce or eliminate your demand charge.

What can be done to reliably reduce your peak demand to reduce this charge?

1. Fully Understand Your Demand Charge. How much are you being charged for peak demand? What percentage of your electric bill is this? Is your demand charge based on your highest 15-minute period of demand during the entire billing cycle or is it for the peak period during the utility’s peak period of concern (often 2 pm to 6 pm)? The latter is called “coincident” demand, coinciding with the utility’s peak period to provide electricity. This is an important distinction and will influence your strategy to save costs.

2. Fully Understand Your Usage Throughout the Day. Make a reasonable estimate of your electricity usage throughout the day. Monitors can be purchased or leased to provide better accuracy. When might your peak demand occur? Software exists to track your usage and demand and may be worth purchasing and using. Such information can also help form an automated demand response program to determine best strategies.

3. Sensible “Behavioral” Changes To Reduce Peak Demand. Is it feasible to move certain operations to another time of the day – to an otherwise non-peak period? Might some workers be willing to work a non-traditional shift? Are there low-cost strategies to reduce your peak demand, such as shades on windows that get afternoon sun?

4. Feasibility of More Sophisticated Technologies. Given your demand charge and the growing number of incentive programs to decrease peak demand, it may be cost-effective to install and operate relatively sophisticated controls. One example is an expansion of what you may already have: using your backup generators to produce electricity during peak periods only. Yes, you will have to pay for gas or oil usage. But reducing that peak demand charge may make it worth it. Of course, you need to check and potentially modify your air permit to ensure that your backup generator can be used in such a non-emergency situation. But this can avoid grid electricity use and perhaps you can make a formal arrangement with your utility to sell it the excess electricity you produce for a profit. Another example is to automatically shift certain electricity-drawing operations to a short time before a peak period is coming up. To reduce electricity usage for air conditioning on those brutally hot days, systems exist to manufacture ice during the overnight hours and blowing air across the ice for cool air for the building. Electricity is used, but mainly at night (when the ice is being made), far from a peak period; little is used during the day. Also, look into batteries. Can excess power drawn at non-peak times be stored and used during the peak? Again, the economics of incentives and a reduced demand charge may justify such strategies.

Utilities around the country are either beginning to introduce or revving up peak demand charges in response to the pressure they are under to reliably deliver power during these periods. Reducing your peak demand will not only save you cost, but also provide you with greater flexibility and reliability. For most, it is worth investing resources for.

Marc Karell is owner of Climate Change & Environmental Services. CCES has the experts to review and advise you on your energy costs and system, to help you gain the maximum financial benefits of both reduced usage and reduced peak electricity demand. Contact us today at 914-584-6720 or at

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