Demand Management for Dummies

Industrial facilities don’t just need energy efficiency – they also need to consider the timing of their energy use.

When you get your home utility bill, you probably just see one charge for the energy you use. For industrial facilities, it’s not that simple.

In addition to the amount of energy consumed, industrial facilities may need to consider:

1. Time-of-use pricing
2. Demand charges
3. Coincident Peak charges
4. Demand response

All this adds complexity – and opportunity. Let’s sort it out.

Time-of-use pricing

All industrial customers are on some form of time-of-use rate. This means your electricity is more expensive during certain periods. Often, those periods are pre-determined. For example, energy may be more expensive in July than it is in April, and it may be more expensive at 3pm than it is at noon.

In some cases, the rates are only known a day in advance. The grid operator publishes day-ahead rates based on expected conditions, and industrial customers can choose to simply pay those rates or to shift their demand to avoid the most expensive periods.

Many customers also have the option to participate in real-time pricing. Real-time rates offer very low prices most of the time, but they can spike dramatically. Rates may be determined on an hourly basis or even in 15-minute increments.

Demand charges

Every industrial facility is charged not just for the amount of energy it uses, but also for the rate at which it uses. Typically, utilities measure the highest power draw reached during the month and apply a substantial charge that affects the whole month’s bill.

The reason is simple: utilities have to plan for the worst-case scenario. They have to build enough power plants to meet peak demand, even if those plants sit idle most of the time, and that costs money. They pass those costs onto large energy users in the form of demand charges.

Some demand charges apply just to that month’s bill, but others apply a penalty that can last for several months or even a full year. Savvy energy managers have learned how to smooth out their power consumption, which can cut demand charges substantially.

It may sound crazy, but demand charges alone typically account for 30-70% of a commercial or industrial utility bill. That means if you’re focused only on energy efficiency, you’re missing out on huge potential savings.

Coincident peak charges

It’s easy to get confused between demand charges and Coincident Peak. Demand charges apply to the user’s highest power demand in a given period. Coincident Peak charges account for the utility’s periods of highest stress on the grid.

For example, a facility may reach its peak demand for the month on a Monday morning. However, the grid as a whole may be most strained on a Wednesday afternoon. Some utilities will apply a separate charge based on the user’s power draw on that Wednesday afternoon.

These periods can be hard to predict. Historically, facilities have just accepted Coincident Peak charges as a cost of doing business. Modern analytics can predict periods of grid stress 2-3 days in advance, giving users a chance to shift their usage accordingly. Doing so can save up to 30% on a user’s bill, plus it helps keep the grid stable for everyone else.

Because Texas does everything a little differently, they have their own version of Coincident Peak called 4CP. The main distinction is that their charges are based only on the 4 hottest months of the year (June, July, August, and September). Read more about Texas’ 4CP program here.

Demand Response

Smoothing your energy use and shifting it away from periods of high grid stress are both forms of demand management. There’s another side to this coin, too, and it doesn’t just save money – it earns revenue, too!

Demand Response is when a 3^rd party, known as an aggregator, asks a facility to curtail load during periods of especially high grid stress, typically no more than 12 times a year. These events may be concentrated in a peak period like late summer, or they may be more spread out.

If you’ve already shut down your facility to avoid that month’s Coincident Peak charge, then you’re not eligible for demand response payments. But if you’re still operating and you get the call from the aggregator, you can actually receive money for shutting down, in addition to avoiding other charges.

Some contracts require you to act when called upon, while others give you the option to approve or reject each request. In either case, you have flexibility to decide which loads to control to meet your curtailment goal.

Signing up for a demand response program can be a great way to earn money for your demand management efforts. However, industrial facilities have typically been slower to participate in demand response than commercial and residential buildings.

That is now changing, for reasons detailed here. Industrial facilities can now automate their curtailment plans, which makes participation in demand response events faster, easier, and more lucrative.

Stacking the value

Each of these methods of demand management can be combined for maximum value. Of course, every utility does things differently, so it can be helpful to have a partner help you navigate the options.

There are many other complexities to industrial energy management as well including delivery charges, reactive power, and of course, measurement and verification. Many customers save money just by adding meters to validate the accuracy of their bills. More complex M&V programs can measure the efficacy of various efforts.

Increasingly, savvy businesses are turning to experts to help them manage these complexities. These could be in-house energy managers and/or outside partners that bring not only their experience, but also modern analytics to address the challenges of utility bill management and carbon reduction.

Learn more about Ndustrial’s load control capabilities here.