Three ways to fight peak electricity demand charges
By Anatoli Naoumov
Each option has pros and cons.
By Anatoli Naoumov
What’s the best way to fight peak demand charges? The three most common options are (a) behind-the-meter generators, (b) battery-based energy storage and (c) curtailing of energy consumption. Each has its own pros and cons.
A natural-gas-fuelled generator allows a facility to switch to its own source of power during the electrical grid’s peak hours. Generator vendors forecast a three- to four-year payback period and an operational life of 20 years. The more aggressive vendors claim very low generation costs, but these do not account for asset procurement, maintenance and decommissioning, which more prudent vendors include in their claims.
Generators are a proven technology that can be used for several hours a day and scaled up in number to meet further demand, but they entail high upfront costs and significant ongoing (and variable) maintenance costs. They also rely on natural gas, which does not tend to vary in price significantly, but is subject to carbon taxes.
If peak demand charges are changed by political whims, then the business case may disappear, leaving the company with a stranded asset. In this sense, even a prudent organization is making its best bet while facing a highly volatile future of natural gas prices, carbon taxes and government designs.
Batteries also allow a facility to switch during peak hours, but to stored electricity that originated from the grid, rather than from its own source.
A vendor will generally promise to install the batteries and then switch the facility to them for a few hours at predicted peak times, with the goal of sharing the financial savings. There may be no upfront investment, additional maintenance costs or changes to facility operations.
Forecasts of peak hours are becoming more difficult, however, and any change in peak demand charges can easily make further co-operation infeasible, at which point the vendor will pack up the batteries and leave.
Also, batteries are slow to charge and will degrade with every use. As such, it is usually infeasible to use them to save energy costs by catching hourly price fluctuations.
Battery-based peak demand cost reductions will work best for companies that focus on their core business and leave the ‘peak chasing’ game to those capable of managing the associated risks.
The purpose of curtailing is to reduce demand for electricity during peak grid periods. Vendors offer to analyze a facility’s energy consumption and then determine which loads can be shifted away from expected peak hours. There is no upfront investment in hardware and a professional analysis of demand structure and patterns will routinely uncover many opportunities for other savings.
The scale of demand reduction is limited, however, and curtailing can disrupt a facility’s delivery schedules, drive more overtime work and negatively affect production quality. Implementation of curtailing also requires active operational management at every peak. Indeed, there is a risk that as the number of possible peaks grows, the cost of production disruption will grow too, with no guarantee of a return on investment (ROI).
As such, this option best suits companies that can afford to disrupt their production processes and have sufficient internal resources to implement it. There is plenty of flexibility, but no guarantees of cost reductions.
Anatoli Naoumov is a managing director and ‘chief energy waste-buster’ at GreenQ Partners, which helps identify, implement and report energy-saving projects. He has been named a Certified Measurement and Verification Professional (CMVP) by the Association of Energy Engineers (AEE) and the Efficiency Valuation Organization (EVO). For more information, contact him at email@example.com.
This column originally appeared in the July 2019 issue of Energy Manager Canada magazine.