Demand Charge Management

Electricity storage can be used by end users (i.e., utility customers) to reduce their overall costs for electric service by reducing their demand during peak periods specified by the utility.

To avoid a demand charge, load must be reduced during all hours of the demand charge period, usually a specified period of time (e.g., 11:00 a.m. to 5:00 p.m.) and on specified days (most often weekdays). In many cases, the demand charge is assessed if load is present during just one 15-minute period, during times of the day and during months when demand charges apply.

The most significant demand charges assessed are those based on the maximum load during the peak demand period (e.g., 12:00 p.m. to 5:00 p.m.) in the respective month. Although uncommon, additional demand charges for 1) part peak or (partial peak) demand that occurs during times such as shoulder hours in the mornings and evenings and during winter weekdays and 2) base-load or facility demand charges that are based on the peak demand no matter what time (day and month) it occurs.

Because there is a facility demand charge assessed during charging, the amount paid for facility demand charges offsets some of the benefit for reducing demand during times when the higher peak demand charges apply. Consider a simple example: The peak demand charge (which applies during summer afternoons, from 12:00 p.m. to 5:00 p.m.) is $10/kW-month, and the annual facility demand charge is $2/kW-month. During the night, when charging occurs, the

$2/kW facility demand charge is incurred; when storage discharges mid-day (when peak demand charges apply), the $10/kW-month demand charge is avoided. The net demand charge reduction in the example is:

$10/kW-month – $2/kW-month = $8/kW-month

Note that the price for electric energy is expressed in $/kWh used, whereas demand charges are denominated in $/kW of maximum power draw. Tariffs with demand charges have separate prices for energy and for power (demand charges). Furthermore, demand charges are typically assessed for a given month; thus demand charges are often expressed using $/kW per month ($/kW-month).

To reduce load when demand charges are high, storage is charged when there are no or low demand charges. (Presumably, the price for charging energy is also low.) The stored energy is discharged to serve load during times when demand charges apply. Typically, energy storage can discharge for five to six hours, depending on the provisions of the applicable tariff.

Consider the example illustrated in Figure 17. The figure shows a manufacturer’s load that is nearly constant at 1 MW for three shifts. During mornings and evenings, the end user’s direct load and the facility’s net demand are 1 MW. At night, when the price for energy is low, the facility’s net demand doubles as low-priced energy is stored at a rate of 1 MW, while the normal load from the end user’s operations requires another MW of power. During peak demand times (12:00 p.m. to 5:00 pm in the example), storage discharges (at the rate of 1 MW) to serve the end user’s direct load of 1 MW, thus eliminating the real-time demand on the grid.

In the above example, storage is 80% efficient. To discharge for 5 hours, it must be charged for:

5 hours ÷ 0.8 = 6.25 hours.

The additional 1.25 hours of charging is needed to offset energy losses. If a facility demand charge applies, it would be assessed on the entire 2 MW (of net demand) used to serve both load and storage charging.

Although it is the electricity customer who internalizes the benefit, in this scenario, it may be that the design, procurement, transaction cost, etc., could be challenging for many prospective users, especially those with relatively small peak loads.

Technical Considerations

Storage System Size Range: 50 kW – 10 MW
Target Discharge Duration Range: 1 – 4 hours
Minimum Cycles/Year: 50 – 500

In this example, the storage plant discharge duration is based on a hypothetical applicable tariff. For example, a hypothetical Medium General Demand-Metered TOU tariff defines six on-peak hours from 12:00 p.m. to 6:00 p.m. It is assumed that this requires five hours of storage duration.

Figure 18 shows an example where the peak loads exceed the threshold set by the first peak of the month on Monday afternoon. That sets the level for the remaining month; loads must remain below that threshold to avoid demand charge penalties.