There are several components that determine the total amount of your monthly electric bill. If your service is greater than 51 KVA (Rate 8 or 9), you will notice a Demand Charge listed on your billing statement. Understanding what "demand" is and how it affects your overall bill can assist you in managing your facility's energy usage.
Energy Consumption (kWh) vs Demand (kW)
For large power users, electricity is billed in two distinct ways: energy consumption charges and demand charges, but what is the difference?
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Energy Consumption (kWh) - The kilowatt-hour (kWh) charges based on the total amount of energy used during the entire billing period.
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Demand (kW) - The kilowatt (kW) charges based on the maximum usage during the month over a specific period of time. It is a measurement of your impact on the electric distribution system that delivers your power.
Most people are familiar with the energy consumption charge and kilowatt-hours because that is the standard for billing at residential service. Demand charges are not included on normal residential service because most homes have a very consistent demand profile. So, just like our cars are most efficient and cheapest to operate when we drive at a reasonable and steady pace on a flat highway, using electricity at a steady rate means that NWEC can provide that electricity at a lower cost.
Demand is only monitored for those member-owners that require large amounts of power for short periods of time. This high, short-term power use requires larger transformers, power lines and generating capacity to meet these infrequent peak needs. The demand charges that NWEC pays to Buckeye Power, its wholesale power supplier, are also calculated based on the highest demand during the month. Buckeye Power must plan for and have available adequate generation capacity to meet our member-owner's consumption requirements, whether that requirement is for 15 minutes or for months.
Two member-owners may use the exact same amount of electricity but have drastically different demand on the electric system serving them.
A 100-watt light bulb consumes 100 watts of electricity per hour. If member-owner #1 leaves that bulb on for 10 hours, it will consume 1 kilowatt per hour or 1 kWh (1,000 watts) and put a 0.1 kW demand on the system. If member-owner #2 leaves ten 100-watt bulbs on for one hour, 1 kWh is still consumed, but the light bulbs place a 1 kW demand on the electric system by having all the bulbs on at once.
Member-owner #2 used the 1 kWh in a shorter time creating a higher demand to generate and distribute the power. This requires the generation plant to produce more power in less time in order to meet the member-owner's demand. It also put a demand upon the transmission and distribution power line to reliably carry the electricity to the member-owner when it is needed.
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Member-owner #1 |
Energy Used = 1 kWh (1 bulb x 100W x 10 hours) Demand = 0.1 kW |
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Member-owner #2 |
Energy Used = 1 kWh (10 bulbs x 100W x 1 hour) Demand = 1 kW |
How Are Demand Charges Calculated?
For accounts with a monthly demand charge, demand is recorded by your electric meter in 15-minute intervals over the course of the month. The 15-minute interval with the peak (highest) demand (kW) is used to calculate the monthly demand charge. The demand reading resets in the billing system after statements are calculated each month.
To illustrate how demand charges can affect your bill, let's look at two simple examples:
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Load #1 |
If you run a 1 kW load for 10 hours, you would use 10 kWh, but would only accrue a demand of 1 kW |
1 kW x 10 hours = 10 kWh Demand = 1 kW |
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Load #2 |
If you run a 10 kW load for one hour, you would use 10 kWh and accrue a demand of 10 kW |
10 kW x 1 hour = 10 kWh Demand = 10 kW |
In this example the difference between the electric bills is entirely in the demand. The bigger the load at any given time, the higher the demand. The higher the demand, the more that is required of the generation and transmission system.
Demand charges and energy consumption charges vary depending on the rate class of your service.
Using the examples above, you can see that the bills for the two loads would be very different even though their energy consumption was the same:
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Load #1 |
Load #2 |
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10 kWh (energy consumption) x current rate = energy charge |
10 kWh (energy consumption) x current rate = energy charge |
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1 kW (demand) x current rate = demand charge |
10 kW (demand) x current rate = demand charge |
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energy charge + demand charge = total |
energy charge + demand charge = total |
Demand charges cover the costs incurred by the cooperative to build and maintain a system of the correct capacity to serve your facility. The costs for demand pay for the cooperative to have lines of appropriate size, a transformer that can meet peak requirements, and services (equipment, supplies and personnel) that can meet all of the needs.
Demand is like...
A Speedometer
Think of electricity like a car. The speedometer measures the maximum speed the car can travel, much like demand (kW) measures the maximum amount of energy used at one time. The odometer measures distance traveled, much like consumption (kWh) measures energy used. The car's motor is built for the maximum speed, regardless of how many miles it may travel. The same applies to electric systems.
- Two cars could travel the same 100 mile road, one at 10 mph for 10 hours and the other at 100 mph for 1 hour. It takes a much more capable and expensive engine to power the car at 100 mph than it does to power the one going only 10 mph.
Filling The Bucket
Suppose you want to fill a 5 gallon bucket with water. You can use an inexpensive hose connection to your sink providing 1 gallon per minute to do it, and it will take 5 minutes. Or you can get to a more expensive large faucet that provides 5 gallons per minute, it will fill in just one minute. The flow rate is the equivalent to demand, and the 5 gallons of water are equivalent to consumption. In this example, filling both buckets has the same "consumption" but very different "demands".
Sports Fans
Sports stadiums are built to hold thousands of fans for a few hours. The rest of the year, they are largely vacant. However, the seats, restrooms, concession stands and parking spots remain. In this comparison, the people (sports fans) in the stadium are like the demand or kW. The electric grid is like a stadium because NWEC and Buckeye Power (our wholesale power supplier) have to build the electric system to accommodate the maximum amount of electricity needed, even if the member-owners don't use the maximum capacity all day, every day of the year.
You could compare this sports stadium analogy to a grain drying service. It has to be built to serve a substantial load, but it is only used a few weeks each year. A grain dryer service may have a high demand for three weeks of the year and a demand of zero during the rest of the year.
How to Reduce Demand Charges
In general, there are two strategies for reducing demand. The first option is to change what equipment is on. The second option is to change when the equipment is on.
It is important to examine your operation. Does all the equipment need to be running at the same time? If not, what can be turned off when other equipment is running?
Often there is equipment that is operated infrequently. If this is the case, can some other equipment be turned off while this equipment is running? The result may be a significant savings in your monthly demand charge.
NWEC is here to help. We are happy to evaluate ways to improve the energy efficiency of your operation. We can assist you in determining your load factor and offer suggestions on reducing your demand. Give us a call at 888-636-5051 or send us a message.
We also offer rebates to our commercial, agricultural and industrial member-owners when new energy efficient equipment is installed or if you choose to have a professional energy audit performed. For more information about the rebate options, visit our Rebates page.