Demand Rates & Solar Value

Electric billing schedules for commercial sites typically have a demand component based on how fast energy is imported from the utility. Lets take a closer look at Demand Rates & Solar Value – what demand rates are, and what affect they have on the solar value statement.

Quick Electric Utility Billing Primer

->For a quick primer on reading electric bills, see our this post.

When you look at the electric bill for your home, you’ll generally see that the bill amount is comprised of 3 distinct components:

  1. Customer Service Charge. This is a fee that the utility collects for being its customer. Its like an account charge, and its generally constant; it doesn’t change month-to-month, and its not related to how much energy you’ve used.
  2. Delivery Charge. This is a fee that the utility collects for delivering the energy you used (in that month) to you. Its basically the utility’s way to cover its operating expenses and profits for managing the local grid and your connection to it. The value changes based on how much energy you imported.
  3. Supply Charge. This is a fee that the utility collects to cover the cost of the actual energy that you’ve imported. Utility companies import energy from large suppliers (think Niagara Falls, wind, or nuclear generating stations) and supply it over their network footprint to customers. The rate they charge their consumers for each kilowatt-hour is related to a blended cost across each of the suppliers that supply it with the energy it distributes. The charge value changes based on how much energy you’ve imported.

So, in summary, residential billing is simply the combination of a constant fee plus some usage based fees which are levied based on the number of kilowatt-hours imported.

Solar affects utility billing by allowing homeowners to avoid importing energy from the utility. The more of a homeowner’s usage is covered by an on-site solar system, the lower its delivery and supply charges will be. For residential customers (in NJ and NY), solar kilowatt-hours are worth the same as imported kilowatt-hours (up to the point where the location is net-zero import on an annual basis). The customer service charge is unaffected by solar.

What about for Commercial Customers?

Commercial customers generally have much different rate structures from residential customers. The primary difference is the existence of something called a Demand Rate.

Instead of just billing a commercial customer’s usage based on just how much energy was imported, the utility bills for HOW FAST the commercial customer imports energy. So a commercial bill is typically comprised of:

  1. Customer Service Charge. See above.
  2. Delivery Charge. See above.
  3. Supply Charge. See above.
  4. Demand Charge. This is a fee that the utility collects to cover its operating costs and profit margins to maintain infrastructure to serve the commercial customer the energy it, needs when it needs it, and at the speed its required.

Demand is measured with a demand meter that the utility has installed at the customer’s site. Demand meters measure peak draws of power over 15 minute increments. If a commercial location turns on several pieces of equipment at one time there will be a demand spike measured by the demand meter. The utility will read that peak demand measure and introduce commensurate charges in the next billing cycle.

Demand charges are generally substantial relative to the total monthly charges for commercial locations. We’ve seen them as high as 50% of the total monthly bill. Utilities also charge less per kilowatt-hour for supply and delivery. Sometimes 30% less. The utility makes up the fee difference through the demand structure.

So how does solar help commercial customers?

Solar helps commercial customers in the same way as it does residential customers – by helping them to avoid importing energy from the utility. However, there is a big difference in the overall value statement:

Solar provides its value by offsetting energy usage over a billing cycle. It does NOT RELIABLY provide value by offsetting how FAST energy is imported from the utility.

Solar is an intermittent resource, and as such solar systems cannot be expected to be generating at every point of demand of a customer’s billing cycle. Imagine the night-shift in a factory. Equipment may be running and drawing power, but its nighttime and the solar system is sitting dormant.

Demand charge billing schedules negatively affects the solar value proposition:

  1. Commercial customers already pay less per kWh because of the demand rate structures.
  2. Commercial customers pay a demand charges component which solar cannot reliably affect.

Seems complicated…

It is and it isn’t. If you have been in the industry as long as we have, you should have a pretty good handle on how to dissect a bill and nail down solar value. Unfortunately there are solar “salespeople” and “installers” out there who should know these things, but don’t. They are the unscrupulous ones who, due to their own ignorance or lack of honesty, abjectly misrepresent solar savings for commercial customers with demand rate schedules. Its irritating. In these cases the industry as a whole takes another un-needed hit and the end customer ends up frustrated because their return in investment wasn’t as the solar guy said it would be. So irritating.

What should I do if I’m interested in putting solar on my business? Call EcoMen. We’ll ask for a copy of your latest electric bill, analyze it’s rate structure, and then work with you to help you determine if going solar makes sense. We are experts in dealing with Demand Rates & Solar Value.

We look forward to working with you.

 

Additional resource(s):

https://www.renewableenergyworld.com/articles/2017/06/making-sense-of-demand-charges-what-are-they-and-how-do-they-work.html