Our previous blog, UNDERSTANDING YOUR UTILITY BILL; THE WHERE, WHEN AND WHY OF YOUR MOTOR-DRIVEN ELECTRIC EXPENSE discussed how managing the energy expense should focus on the variable components of the utility bill, specifically the consumption and demand charges. Understanding the components of the energy bill is fundamental to managing energy expense. Utility rate tariffs can be complicated and vary widely depending on the utility provider, but it’s critically important to understand them. Without knowing the exact rate structure that comprises the energy bill, it’s difficult to enact operational energy savings measures, which have the greatest impact.
Electricity use is metered and billed in two ways: first, based on the total, energy consumption (kWh) in a given month, and second, the demand (kW), based on the highest (peak) capacity required during the given billing period, typically a 15 or 30 minute interval during that billing cycle. This post explores demand charges which can comprise 30 to 40% or more of an industrial or commercial energy bill. Certain industries, like manufacturing and heavy industrials, typically experience much higher peaks in demand due largely to the start-up of energy-intensive equipment, making it even more imperative to find ways to reduce this charge – but regardless of the industry, taking steps to reduce demand charges will save money.
Understanding Demand Charges:
To gain a better understanding of demand management let’s first answer some frequently asked questions.
What is demand?
Demand is the total amount of electricity being used during a defined time period for a specific meter. Demand typically varies from hour to hour, day to day and season to season. This capacity of electricity is expressed in kilowatts (not kilowatt-hours). Utilities record demand over a 15-minute interval. The customer is charged for the highest 15-minute demand recorded on the meter during the billing period.
What is a demand charge?
Demand charges are based on a customer’s maximum 15-minute demand. Demand is measured in kilowatts (kW). Customers are billed according to kW of demand for their utility rate tariff. Albeit a very simplistic example the following demonstrates how the demand charge is reflected in an electric bill: running a 100 kW load for one month would result in a demand of 100 kW. With a demand rate of $10/kW the demand charge would be $1,000.
Why have a demand charge?
The concept of a demand charge was introduced to treat customers more equitably, meaning that those who require excessive peaks of power during certain hours, and very little power during other hours, contribute their fair share toward the utility’s installed capacity. Demand charges are how utility pays for generation capacity it needs to meet the demand requirements of its customers. Demand billing is used consistently throughout the electric utility industry.
How does the demand affect the electric bill?
The demand charge will be a large part of the bill if the customer uses a lot of power over a short period of time, and a smaller part of the bill if the customer uses power at a more or less constant rate throughout the month. Let’s look at two examples:
- A 200 hp pump operating for 5 hours in a month:
Demand Charge = 200 hp x .746 kW/hp x $8.00/kW = $1,193.60
Energy Charge = 200 hp x .746 kW/hp x 5 Hr x $0.034/kWh = $25.36
- A 200 hp pump running constantly through the entire month:
Demand Charge = 200 hp x .746 kW/hp x $8.00/KW = $1,193.60
Energy Charge = 50 hp x .746 kW/hp x 744 Hr x $0.034/kWh = $3774.16
As you can see, the demand charges do not change whether the pump runs five hours or all month. However, the energy charges do depend on the amount of time the pump runs.
How to reduce demand charges
Many strategies have been employed for reducing peak demand in nearly every type of commercial and industrial facility. Common amongst all are the following steps:
The first step in this process is gaining visibility of the load profile and to understand which facets of an operation comprise the load and could cause peaks in the demand curve.
The second step is understanding the utility rate tariff structure and its components. As mentioned in the previously referenced Blog to this post, this is essential!
The third step is to consider energy efficient, low-cost operational practice adjustments that can be made immediately that will not have a significant impact on production. These adjustments include determining if all or some of the equipment needs to be running at the same time. If not, what can be turned off while other equipment is running? Can some other equipment be turned off while this equipment is running?
Every operation has its unique energy-consumption profile, so there is a myriad of permutations to reducing peak demand. Motors@Work understands the key factors that are affecting the energy bill, and has the patent-pending analytics to identify and and communicate the actions necessary to reduce or shift the high-energy users to mitigate demand charges. Contact us today at info@motorsatwork.com for more information.