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Rate Avoidance: A High-ROI Energy Optimization Strategy
Rate avoidance simply means avoiding the highest-priced periods for electricity, and it’s one of the fastest-payback strategies in energy management.
Industrial electric bills are not just driven by the amount of energy used. It matters a great deal when it is used. In fact, avoiding high-priced periods is one of the fastest-payback strategies in industrial energy management.
That’s because the power grid is built to handle even the most extreme scenarios (in theory, at least!). This reserve capacity costs a lot of money, which gets passed on to large energy users in several forms. This post will focus on:
- Time-of-use rates
- Day-ahead rates
- Real-time rates
Successfully navigating these rates requires increasing amounts of operational flexibility – and offers increasingly substantial rewards. Any company looking to improve operating margins or reduce carbon emissions would be well-served to consider the timing of their electricity consumption.
Time-of-use rates
Virtually all industrial operations are on some form of time-of-use or TOU electric rate tariff. Unlike residential customers who typically pay a flat rate, industrial users pay different rates at different times of the day, the week, and the year.
This is best understood graphically. Let’s look at an example:
Visualization of a typical weekday time-of-use rate tariff.
In this example, summer afternoons have the highest rates, as is typical in warmer climates. Industrial customers likely can’t shift production from season to season, but they may be able to shift certain loads to cheaper times of day. Even shifting load from 8pm to 9pm could mean significantly lower operating costs.
With the help of simple visualization tools, time-of-use rates such as this are relatively easy to manage at any given facility. It gets somewhat harder when multiple facilities are involved, especially across utilities – but again, with the right software, companies can visualize and manage a portfolio of rates in a single interface.
Day-ahead rates
Many companies either opt into, or are placed in, a day-ahead rate tariff, which is an advanced form of time-of-use. In these cases, rates are not known until the day before. This ties prices to prevailing market and weather conditions in a much more powerful way. And that means higher risk – and higher possible rewards – for industrial energy users.
Prices in a day-ahead contract can fluctuate much more quickly, and often more dramatically, than in a standard time-of-use structure. Let’s look at a typical example:
A typical day-ahead rate forecast. It’s not uncommon for prices to double or more throughout the course of a day.
Notice in this chart that rates are relatively low (and flat) for most of the day. By taking advantage of these low rates and avoiding the peaks, customers can save money. With a little vigilance, this can be done manually.
Automated load control can also help make the process much easier. By integrating with industrial control systems, software systems can not only send price signals but also control loads based on predetermined criteria such as static or dynamic price thresholds for various processes.
One note of caution: many customers believe that day-ahead rate forecasts can serve as a reasonable proxy for real-time rates. Our experience has shown otherwise. For facilities subject to true real-time rates, a more automated approach is almost always needed.
Real-time rates
A few brave companies are exposed to real-time rates. Rate avoidance in these situations requires the highest level of operational flexibility – and offers the highest rewards.
Real-time rates are typically published either hourly or in 15-minute intervals. This type of rate tariff leaves very little room for error, but if managed effectively, it can enable huge savings. In fact, some companies swear by it.
As Michael Agerkilde, COO of tire recycler Genan, put it: “I would never do anything else. I’ve saved hundreds of thousands.” In fact, by setting up an automated system that curtails certain processes using dynamic price thresholds, Ndustrial has helped Genan save over $1 million a year in their Houston facility.
In this example, Houston spot prices climbed by a factor of 10 in a matter of hours. Avoiding spikes like these is a very effective way to reduce operating costs.
Energy intensity: the ultimate metric
Managing rates is one thing. Understanding how the benefits of rate avoidance compare to the costs of lost production is a much larger undertaking.
Energy intensity and energy cost intensity are crucial KPIs in industrial energy management because they account for production data and energy data together. This requires a holistic platform that integrates many different types of IT and OT systems into a common view.
An added benefit of energy intensity monitoring is that savings are easy to track and contextualize. Understanding how energy usage fluctuates in relation to production and other factors gives operators a real sense of what is working and what is not.
Further reading on energy optimization:
Demand Management and Demand Response: Energy Optimization Easy Wins
