Understanding your customer's utility rates can be an important part of helping them choose which battery is right for them, and the best way for them to generate savings with their new battery.
Most utility companies across the U.S. use volumetric energy rate structures. This is when a utility company charges their customers based on the total amount of energy they use, typically measured in kilowatt hours (kWh). For example: a company may charge $0.15 per kWh, so a customer who uses 900kWh in one month would see this equation:
($0.15 x 900kWh) = 135
Which would result in a $135 energy charge on their utility bill.
Other utility companies and rate plans use Time-of-Use rate structures. This is when the customer is charged different cost-per-kWh rates depending on the time of day the energy is used. A 24 hour period will be split into peak hours (highest cost) and off-peak hours (lower costs).
This article will breakdown the concept of a Demand Charge into the following:
- What is a Demand Charge
- Peak Demand Hours
- Demand Intervals
- Calculating the Demand Charge
- Comparing to Other Rate Structures
Click the links above to jump to the relevant section.
What is a Demand Charge?
We are starting to see more utility companies using rate plans with demand charges with their residential customers, a structure that was typically only used in commercial electricity billing.
In these rate plans, customers are given an additional charge based on the maximum power used during a specific period of time (known as peak demand time), typically measured in kilowatts (kW). The focus of these demand charges is to bill the customer based on their max contribution to the pressure exerted on the grid during any given interval, within peak demand hours.
Demand charges are used in conjunction with a typical rate structure, such as volumetric or time-of-use, so the customer is being billed for a cost-per-kWh for energy consumption AND the added demand charge.
Peak Demand Hours
Peak Demand Hours refer to hours of the day where energy usage across the grid is highest, usually in the mornings and evenings. Take the summer months for example. If you and all of your neighborhood come home from work around 5p.m. and turn on the AC to cool your home, that is several households pulling energy from the same power source at the same time. This means that the overall demand, or stress, on the grid increases.
With demand charges, higher use during demand hours equates to a higher demand charge, since energy used during those hours is contributing to that increased grid stress.
The actual hours of the day that are considered peak demand hours will depend on the utility company, location, and season. For example, in the image below, this theoretical utility company's peak demand hours are between 2 p.m. and 7 p.m:
A demand charge is NOT the same as a Time-Of-Use rate plan. Demand charges may be added onto a Time-of-Use rate plan, but the two terms are not interchangeable.
Jump to this section, to learn more about the differences between the two.
Demand Intervals
A customer's energy usage during the peak demand hours is used to determine the demand charge, typically monitored by the utility company in small intervals.
Depending on the utility company, this interval length may be anywhere from 15 minutes to 60 minutes. So, if the peak demand hours are between 2-7pm (as seen in the graph above) and the utility company monitors energy usage in 30 minute intervals, there would be 10 intervals:
The interval with the highest energy usage will be identified and used to represent the maximum power the household may use during the demand window, or the max amount of 'pressure' that household is exerting on the grid. This max power value will then be used to determine that month's demand charge.
Calculating the Demand Charge
The focus of the demand charge is to bill the customer based on the max amount of pressure they're exerting on the grid. Again, this is billed to the customer in addition to the overall energy consumption charges.
This is calculated using the kWh value from the interval with the highest usage amount and inputting it into this equation:
(peak interval usage) ÷ (interval length in hours) x (demand rate) = Demand Charge
For example, assuming the following:
- The utility company uses 30 minute intervals (0.50 hours)
- The utility company has a $20 per kW demand rate
- The customer's peak power interval usage was 5kWh
The equation would look like this:
(5kwh ÷ 0.50) = 10 kW
(10 kW x $20) = $200
In this case, 10 kW is the customer's demand on the grid, in kW (not kWh). This value is converted from the interval kWh, into kW for the full hour, to determine the highest amount of energy the customer is set to pull from the grid during peak hours.
That is then is multiplied by the demand rate of $20. So, for that month, the customer would be paying a $200.00 demand charge, on top of the cost of their consumption. See the example utility bill below:
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Comparing to Other Rate Structures
