Let's talk about New England utility demand charges

For many end use customers in New England, the best opportunity to save money on their electricity bill is to reduce their peak demands. This may be surprising to many since the majority of energy efficiency sales people focus on reducing the volume of energy consumed (kWhs) and barely mention demand charges. There are two reasons for this: the first is that utility Demand Side Management (DSM) incentive programs are measured based on kWh savings and the utility rebates are sized according to expected kWh reductions; and the second is because a stunning number of energy efficiency sales people have no idea how to read a utility bill (I'm not kidding). The graphic below shows a daily load profile for a building and illustrates the concept of peak demand. In essence, its the maximum rate at which power is consumed. kW is a rate, kWh is a rate over time.

Peak demand graphic.png

What makes demand charges so difficult is that they are all over the map. The reduction in peak demand in the graphic above will have a very different payback based on the utility, the distribution rate, and the time of year where the demand reduction occurs. The graphic below demonstrates the variability in demand charges across utilities and even within the rate structures of individual utilities. 


As you can see, if you're selling an EE deal in MA in the NGrid service territory, talking up savings from reducing demand charges won't get you very far. The demand charge on the NGrid G-3 rate is only $3.92/kW. Now if you are selling to a customer in the NStar - Boston Edison zone on the B7 rate, talking about demand charges is a great idea since the summer demand charge is $28.62/kW per billing cycle. 

Its not just the size of the demand charge that matters, equally important is the utility's on-peak period. The demand value billed to the customer will be based on the maximum reading during the on-peak time period. The advantage to this is that customers who have flexibility (e.g., a three shift factory) can move high demand production activities outside the on-peak time period to save money. The graphic below shows the degree to which the peak period varies among different utilities.


As the graphic above illustrates, if you are in WMECO or CL&P, you can shift demand intensive activities to the morning to save money. For most other utilities, the peak demand window encompasses the majority of the day and for some, its 24x7. Understanding the peak demand time window is a critical component of any thoughtful energy efficiency strategy (at least if your goal is to save money).

We are going to have several follow-up posts on this topic, but if demand charges are something you are thinking about, call us. We've got lots of data and can probably help you.