Peak Load Management

Make targeted adjustments to energy usage during peak hours to reduce energy costs

In general, the charges on your utility bill fall into one of two categories, demand based charges and usage based charges.

Usage Based Charges

Usage based charges are based on the amount of electricity you are consuming within an hour, measured in kilowatt-hours (kWh), and will typically be billed monthly.

Demand Based Charges

Demand based charges are calculated based on your peak electricity usage in any one hour, measured in kilowatts (kW), during a specified period of time, usually a month or the entire year. Demand charges appear on both the utility distribution portion and the energy supply portion of your utility bill.  Attempting to control these demand based charges is referred to as Peak Load Management.

In competitive electric markets such as New England, New York and PJM, the Independent System Operator (ISO) is responsible for paying generators for their capacity to perform during critical hours. Simply, electric generators are paid to guarantee that there will be enough electric supply available to meet forecasted demand requirements into the future. These costs are pre-determined using competitive auctions. To calculate the amount of this capacity charge that you have to pay, the utility grid operators measure the amount of energy that you are using at the time when the grid is at its peak demand. Based on your usage at times of grid peak demand, you are required to pay a demand charge that is called capacity charge.

In most cases, demand-based charges are included as a part of your utility distribution costs on your utility bill. Typically, these charges are based on your peak demand during any hour of the billing cycle on your electricity bill. In order to manage these demand-based costs, it is important to understand what operations and systems are contributing to your consumption during peak demand periods.  With this understanding, you may be able to take actions that will reduce your peak demand, such as reducing your lighting and air conditioning load for short periods, and as a result, lower your peak demand-based charges on your utility and/or energy supply bills.

What you use this year on the peak day(s) will become your future capacity tag assignment. Just one hour of high energy usage during the year can lead to higher bills the following year. Usource works with clients to predict when these peak demand hours occur. By making targeted adjustments to energy usage during these hours, you can significantly reduce costs.

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Understanding capacity charges

Your total electricity charge is made up of several individual costs: some controllable, others not. On your utility bill, you will notice a utility distribution charge and a supplier charge. The distribution charge paid to your utility accounts for roughly 25% of your total electricity cost and cannot be changed. The remaining 75%, your supplier charge, includes cost components, such as the actual generation cost of the electricity, capacity, transmission, and other smaller charges.

The capacity charge is one cost that can be affected with proper management. Your capacity charge is made up of two main components: capacity cost and capacity tag.

  • Capacity cost: The generation price set per kilowatt-hour
  • Capacity tag: The total kilowatt-hours used by a facility on the peak hour(s) of the peak day(s)
capacity charges equation
capacity charge breakdown graph

By effectively predicting the potential peak day(s), companies can temporarily reduce their electricity usage to lower their capacity tag for the next capacity year. A reduction in the capacity tag will help mitigate the increase in the capacity costs going forward and likely generate additional savings.

Explore More Energy Options

As a Demand Response program participant, you can get paid to reduce or shift your facility’s electricity usage when your regional power grid is reaching peak demand.

From equipment upgrades to solar installations, battery storage to electricity procurement; Commercial Optimizer can empower strategic, decision-making.

Let us help you with energy audits, energy usage benchmarking, identifying available rebates, and implementing an energy efficiency plan.