Can Solar Help Me Avoid Demand Charges?

In this blog post, we are going to take a closer look at demand charges and the impact that an on-site solar PV system may have upon them. While many people simply assume that their measured demand will be reduced by the average output of the PV system, they are often disappointed to find that this is not the case. The amount by which solar PV systems reduce demand charges are influenced by a variety of factors and we are going to explore several of them in this post where we will take a close look at a customer behind Southern California Edison (SCE). 

As a quick refresher, SCE determines demand, in kW, based on the maximum 15-minute rate of consumption. For rate TOU-8, demand is measured on a 24x7 basis to determine the facilities demand charge and separately measured during the mid-peak and on-peak periods to determine the demand charges for these respective periods. The on-peak period only exists during the summer months of June - Sept. The graphic below shows a screenshot of an SCE invoice and identifies each demand charge. 

As you can see, the on-peak demand charge during this billing cycle is significant at $22.99/kW and even a modest reduction in on-peak demand will yield significant savings. Since the SCE on-peak period is defined as noon - 6pm on summer weekdays, you'd think that solar PV would be a sure thing to reduce this charge. Sometimes it is.......and sometimes it isn't as we'll see below. The first graph below shows a month where the solar PV system performed consistently and reduced the on-peak demand by about 500 kW from what it otherwise would have been. Given current on-peak SCE demand charges of $25.33/kW (June 1 2014 tariff), this reduction of 500 kW would yield a savings of $12,665 for this billing cycle. Note how this load profile is classic "Duck Curve" and how easy it is to distinguish between weekdays and weekends. 

The X axis shows hours 1 - 24 and the Y axis shows hourly kWh usage. Each line depicts the hourly load for a given day of the month and the legend to the right shows the line colors associated with each day.

The X axis shows hours 1 - 24 and the Y axis shows hourly kWh usage. Each line depicts the hourly load for a given day of the month and the legend to the right shows the line colors associated with each day.

The graph below shows July '13 where a couple of cloudy afternoons ruined the demand charge savings for the month. You can see a handful of days where the load rebounds between 3 - 4pm to about 2,900 kW when solar output is diminished due to cloud cover. Although there are still some savings relative to where the load would be without solar PV, the savings in demand are significantly less than the average output of the PV system.

The X axis shows hours 1 - 24 and the Y axis shows hourly kWh usage. Each line depicts the hourly load for a given day of the month and the legend to the right shows the line colors associated with each day.

The X axis shows hours 1 - 24 and the Y axis shows hourly kWh usage. Each line depicts the hourly load for a given day of the month and the legend to the right shows the line colors associated with each day.

As this example demonstrates, even when a utility has an on-peak period that coincides with solar PV output, demand charge savings will still exhibit a high degree of variability from month to month. As a result, savings from demand should be treated as extra gravy, but the basis for any financial analysis around behind the meter PV has to be driven by avoided kWh charges. These are more certain (presuming your solar PV system works properly) while reductions in demand can be fickle.

If you have questions about this stuff, call us.