Understanding Your Energy Cost Drivers: What’s the Difference Between Facility Peak and System Peak?
For businesses with high energy spend, when you use energy can be just as important as how much energy you consume.
Today, these considerations are becoming even more important. Amid a number of trends disrupting the energy industry, including the rise of renewable energy and the implications of new regulatory mandates, energy suppliers, utilities, and market regulators face new challenges and new costs. To recover these costs, energy providers are increasing charges on their customers’ bills that are based on their facilities’ energy intensity, which is determined by measuring their peak demand levels at certain intervals. These demand measurements fall into two main categories: facility peak and system peak.
Managing both cost drivers can go a long way toward reducing total electricity costs. In a number of regions across North America, these cost savings are also driving the business case for distributed energy resources (DERs), such as energy storage and combined solar-plus-storage systems.
While the nuances of managing facility and system peak vary widely for every facility, this article is meant to be a high-level primer on how these different charges are calculated and what commercial and industrial (C&I) energy consumers can do to manage the costs related to them.
What is Facility Peak, and How Can You Manage It?
Facility peak is the highest amount of energy consumed by a facility in a particular length of time, and is typically calculated by multiplying a facility’s highest amount energy consumption in a month (measured in kW) by various tariff demand charges ($/kW-month).
In most cases, utilities impose these charges on a monthly basis. In de-regulated markets, these fees are generally related to transportation and distribution (T&D). In regulated markets, however, they can be related to both supply and distribution. Depending on your market structure, facility peak charges may appear in different parts of your bill or in different bills altogether.
In Boston, for example, Eversource customers often face monthly demand charges related to facility peak that reach $19.19/kW-month in the winter and $27.84/kW-month in the summer. At these prices, customers with 1MW monthly peaks will spend more than $250K per year in facility peak charges.
Since facility peak charges are typically assessed monthly, managing those peaks successfully is an ongoing process. Some facilities plan operational schedules to avoid starting up or running energy-intensive equipment at the same time. Energy storage can also play a valuable role, with DER Optimization Software automatically transitioning the facility’s load onto on-site battery assets and other DERs—keeping energy-intensive equipment operational while minimizing demand on the grid.
Given the value of reduced facility peak charges, these efforts often generate significant return.
What is System Peak, and How Can You Manage It?
Unlike facility peaks, system peaks are assessments of a facility’s demand at the times when the system as a whole sees its highest levels of demand, such as when high temperatures increase air conditioning usage across the grid.
In many markets, energy providers measure each facility’s peak demand across the several highest one-hour periods of system peak (the exact number of hours varies by market). That figure is then used to calculate certain charges on the electricity bill—including capacity, transmission, and ancillary charges—for the subsequent billing period or even the entire subsequent year (again, depending on the region).
In de-regulated markets, system operators identify the hours when the grid is most stressed, while suppliers assess the charges themselves.
To go back to the example in Boston, the New England Independent System Operator (ISO-NE) has set annual system capacity charges at $10.80/kW for the 2019-20 capacity year. This means that energy suppliers will charge Boston customers roughly $130K in 2020 for every 1MW of energy they use when the New England grid is most stressed this summer.
Customers that can anticipate when system peaks will occur and proactively reduce their demand can reduce these costs substantially. This could mean shutting off nonessential equipment, re-scheduling maintenance periods that require equipment downtime, or shifting parts of a facility’s electric load onto an energy storage system or backup generator (note: backup generators need to comply with federal, state, and local regulations to be used for non-emergency purposes, such as demand management or demand response—learn more with this whitepaper).
Additionally, predicting system peak events can be complex. In Ontario, Canada, for example, charges stemming from system peak account for as much as 70% of the electricity bill for C&I customers. However, as we covered in an in-depth article last year, the Ontario grid’s system peak events are becoming increasingly difficult to anticipate.
For C&I energy consumers in the province—as for those in other markets with high system peak-related charges—access to reliable data on grid-level activity is critical to managing these costs.
Bringing it All Together
Looking at these facility and system peaks together, the 1MW example Boston facility spends almost $30K per month in demand charges during the winter, and nearly $40K per month during the summer. If this example facility were able to manage down their facility and system peaks by just 20%, the company would save almost $80K per year.
For the C&I energy consumers that take a strategic approach, demand management results in substantial savings. The first step to capitalizing on this opportunity is understanding how they’re calculated.