Electric utility rates have increased over 20% in the past 5 years, according to the Department of Energy. Many companies have turned to energy-efficient equipment to reduce these costs. While this can help, most customers are surprised that demand charges make up 50%–70% of their utility bill.
This article is the first step to addressing this problem. It is dedicated to the difference between two key electrical concepts: energy and demand.
Understanding Energy vs. Electrical Demand
⚡ Energy
Energy is the total amount of electricity consumed over a period of time. Think of it like the total miles you drive in a car over a month. It’s measured in kilowatt-hours (kWh), and your utility company charges you based on this—basically, how much power you’ve used overall.
📈 Electrical Demand
Electrical demand, on the other hand, is the rate at which you’re using electricity at any given moment—the maximum rate during the billing period. Using the car analogy, this is like your car’s top speed. Measured in kilowatts (kW), it reflects the “peak” load on the system and is a major concern for utilities because it strains the grid and requires more generating equipment to produce.
In short, Energy is the “how much” over time. Demand is the “how fast” at a point in time.
How a Single 15-Minute Peak Sets Your Monthly Bill
Your electric utility monitors your kW demand in 15- or 30-minute intervals to seek your peak demand for the billing period. In the U.S., demand charges typically range from $9 to $22 per kW. Our industrial customers typically have monthly demands between 500 kW and 12,000 kW.
The graph below shows a typical energy profile during the course of the day at a factory. Often, there is a morning spike in demand as first-shift workers start the day and turn on machinery.
This peak, even if it only lasts for 15 minutes, sets the demand charge for the entire month.
For example, a facility’s demand peaks at 375 kW. It doesn’t matter if the highest demand on every other day of the month was only 200 kW. You’re still paying a charge for 375 kW, even if it was just for one 15-minute period when a large machine was turned on at the wrong time. This one mistake could cost thousands of dollars per month.
Strategies for Demand Control (Demand Shaving)
The process of lowering your peak usage is called demand shaving. It can be automated through a new or existing building management system (BMS) or through simple manual procedures. Here are a few examples:
- Automated Systems: A system can monitor demand and automatically adjust non-critical systems. For example, a system identified a peak occurring during the 11:00 AM hour and temporarily idled one of the air conditioning units for an unoccupied building, reducing the demand by 50 kW.
- Process Scheduling: A high-load process, like an electric furnace, can be run during the third shift instead of during the peak demand time. For a process that requires a chilled liquid, that liquid could be chilled during the night and consumed during the day.
- Energy Storage: If a large holding tank must be pumped out daily, this could be activated at midnight instead of during the peak day.
- Predictive AI: A.I. is seeing increased use in these systems. Some are using weather forecasts to anticipate demand fluctuations or monitor other changes to proactively adjust heating and cooling systems.
Finding Your Opportunity
The goal is to find and eliminate energy consumption that serves no value. The best way to gauge this is by looking at your facility’s load factor (also listed on your bill). During regular production, your facility’s load factor should be 80% or higher. A load factor below 80% and varies widely from month to month indicates strong potential for reducing costs through demand control.
The saving opportunities are endless. D.L. Steiner is here to help you identify practical demand savings opportunities without interfering with your daily operations.
For answers to your questions on lowering electrical costs through demand control, please contact Gary Osterfeld.