We’ve previously posted about demand rates and solar value. In this post we dissect a real commercial electric bill to illustrate how demand-based billing affects the apparent cost of electrical energy. This is perhaps the single most important element of a solar proposal a decision maker needs to have a great grasp on.
Its very common for solar sales and solar installers to botch the handling of demand charges and OVERSTATE the savings proposition. You don’t want that. The solar industry doesn’t want that. Its bad, deceptive business.
Most of us are familiar with the electric utility bills for our homes. There’s a fixed customer service charge, a delivery component, and a supply component (check here for more). The latter two being levied upon how much electrical energy (in kilowatt-hours) is imported fro the utility over the utility meter. Looking across the utility landscape of NJ/NYC (as of 6/2018), we see:
|Utility||Residential Rate ($/kWh)|
How different are residential and commercial rate structures?
Lets look at the relevant parts of an actual JCP&L commercial bill to get a feel. I’ve called out important aspects of the bill with green numerals:
- This is the actual kWh usage the site used that month.
- This is the Rate Schedule and Service Type. In general, 3 phase services have demand structures.
- These are energy delivery line items related to kWh import. For instance, the first item with subtotal $58.62 is from 1000kWh of energy delivered at a rate of $0.058622/kWh. There are several delivery line items, as you can see.
- This is a delivery demand charge. Demand charges are based on peak power draw (in kilowatts). Notice that the subtotal for this item is $766.26. Thats the result of a peak draw (in the related billing cycle) of 116.1 kW billed at $6.60/kW. Also note that the delivery demand charge subtotal is almost 52% of the total delivery cost ($766.26 / $1,475.21).
- This is a cost related to a separate meter feeding outdoor lighting. We will factor this cost out from further calculations.
- This is the supply cost for the 35,320kWh that were imported. The business owner is using a 3rd party energy supplier called Direct Energy Business LLC.
- This is the supply cost for the energy imported for outdoor lighting (see #5 above). We will factor this out from further calculations.
Ok. So, lets determine the effective Delivery Rate for this customer. To do so, we:
- Determine the non-demand portion of the delivery by taking the total consumption bill charges (for the non-lighting meter) and subtract the delivery demand subtotal: $1,475.21 – $766.26 = $708.95
- Determine the effective $/kWh rate by dividing the non-demand portion of the delivery by the total number of imported kWh: $708.95 / 35,320 kWh = $0.0201/kWh
So now we know the effective Delivery Rate is $0.0201/kWh
Now. Lets determine the effective Supply Rate for this customer. To do so, we:
- Find the supply billing subtotal. For this bill we look to callout item #6, which shows the supply charges for the 3rd party supplier.
- Take the supply charge subtotal, and divide it by the number of imported kWh: $3,182.33 / 35,320 kWh = $0.0901/kWh
So now we know the effective Supply Rate is $0.0901/kWh
So, what is this customer’s effective all-in kWh rate? Its the effective Delivery Rate + effective Supply Rate:
$0.0201/kWh + $0.0901/kWh = $0.1102/kWh
Now, look at how the residential rate differs from this commercial rate. The JCP&L residential rate is $0.136/kWh. The effective commercial rate per our calculation ($0.1102) is ~19% lower.
How do Demand Rate Structures affect solar savings?
The simple answer is that they slow return on investment because the energy that the solar system is producing is worth less in demand billed customers ($0.1102 in this case) than it is in non-demand billed customers ($0.136). Solar’s value statement is directly proportional to the per-kWh rate of imported energy. This is because solar works by producing kWh to help offset kWh import. The higher the effective kWh rate, the more valuable each solar produced kWh is, and the better the solar savings. If you are planning to interview solar companies for a commercial project, its crucial that you review how they are handling the solar value statement as it relates to demand charges. Its very common for solar sales and solar installers to botch the handling of demand charges and OVERSTATE the savings proposition. You don’t want that. The solar industry doesn’t want that. Its bad, deceptive business.
- Solar savings and ROI depend on the effective kWh rate.
- Commercial effective kWh rates are typically lower than residential kWh rates due to demand charge billing components.
- Always probe solar installers/salespeople on EXACTLY how they derived your per kWh energy cost and overall solar savings and solar value statement. Force them to show their calculations. This is not rocket science, and transparency is the name of the game.
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