Electricity Demand: (Don’t) Eat Your Pies!

Electrons are difficult to see, so talking about electricity can sometimes be confusing for people whose everyday job does not involve measuring kilowatts (kilo-whats?) and kilowatt-hours (did you fall asleep just reading that sentence?). But just about everyone uses electricity everyday. If you are a commercial or industrial customer, then it is really important to understand electricity demand.

Understanding that you pay for the electricity you use in a given period of time is pretty straightforward. Understanding demand is a little trickier. Demand charges are based on the fact that electricity generators and transmitters must match electricity production and delivery to the instantaneous demand for electricity. Thus, they need to have the capacity to deliver all of the electricity needed at the point in time when the total demand for electricity is highest (typically in the summer months due to air conditioner use). Utilities must maintain this capacity even at times when demand is not at its highest. The demand charge helps to pay for the infrastructure that isn’t being used all the time so it is available when needed during the peaks. Customers that have a greater contribution to that peak end up paying a higher demand. Typically, only commercial and industrial customers are large enough to individually affect the peak, which is why residential customers do not see demand charges.

Pretend for a minute that you bake pies and I buy and eat only your pies. Your oven can only bake one pie at a time, but you also have to have a pie ready for me whenever I want to eat one. As long as I eat pies at the same or slower rate than you can bake them, you don’t need another oven or any more pie-making equipment (e.g., pans, mixers, or ladles (are ladles used when making pies?)).

Anyway, if I start to eat pies faster than you can make them in your single oven, you will have to invest in a second oven and more pans and equipment because you must have a second pie ready when I finish the first one. I will eat pies faster for a while, but eventually I will slow down again and one oven is all you need to keep up. But now you have a second oven and extra equipment you aren’t using anymore. As your only pie consumer, you could start making me pay more for my pies now. After all, I caused you to need a second oven even though it is just sitting there. I was the reason you had to buy it, so it is reasonable for me to help pay for it.

The electric demand charge is like the extra cost of that second oven, except that electric utilities spread that cost among many customers. Utilities also figure out who is eating the most pies and causing most of the the need for extra ovens. Utilities charge those pie eaters even more than the rest of pie eaters.

Depending on how your company uses electricity, it might save as much energy from demand reduction as it could from energy efficiency improvements (energy efficiency is like eating fewer total pies, regardless of how fast you eat them). Although it is clear that the energy efficiency market has been attracting smart money, and that efficiency improvements can reduce demand, many companies fail to consider how strategic demand reductions can save money.

In Verdis’ own work OPS has made significant progress with energy efficiency improvements (lighting retrofit, building system improvements, behavior change). Thus, Verdis is starting to explore whether and how targeted demand reduction can help OPS save additional dollars. Although the main driver for demand reduction in many organizations is cost savings, there is an environmental benefit as well. The longer we can help keep that usage peak low, the longer we can delay construction of the next big utility plant. And until every next utility plant will be something other than coal- or natural gas-fired, we have an extra incentive to keep demand low.


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