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Peak Demand

Updated: Feb 10

Utility power companies incur several costs associated with providing power to its customers including peak demand costs. The cost to generate and supply electricity increases during times of peak demand, when above average power use occurs. Peak demand charges are sometimes added to power bills. When a peak demand charge applies, the energy charge is reduced in exchange for added the demand charge.


Peak power use usually happens during the morning when people are getting ready for the day and in the evening when people are returning home from work, but in the summer time it can also be around noon due to air conditioning.


The peak demand charge for each bill is based on the single highest demand event occurring during the billing period within the specified peak demand times (which varies seasonally). Naturally, the peak typically happens when high-powered appliances are used simultaneously, such as an electric clothes dryer or oven while electric heat or an air conditioner is also running.


Black Hills Energy summary
This is a billing summary for a Black Hills Energy account with a Demand Charge. The total energy charge (including the cost adjustment) is $177.22. The Demand Charge for a 10 kW peak ($81) is nearly 30% of the total bill. To calculate the energy rate from a BHE bill, add the price for both the energy charge and the Cost Adjustment Summary, then divide this by the number of kWh registered. In this example, the total energy charge works out to $0.064 per kWh.

The peak demand charge is in addition to the energy charge. The energy charge is based on the amount of energy used measured in kilowatt-hours (kWh). The peak demand charge is based on the highest demand for power, measured in kilowatts (kW).


Peak Demand billing is designed to encourage consumers to reduce their demand during peak periods for an opportunity to reduce their bill accordingly. However, this system also has the potential to serve the opposite effect; if power use isn't limited during the peak demand periods, bills can be higher than if it was a regular energy rate only. Remember that demand charges aren't based on a monthly or daily average, but rather, the single highest 15 or 30 minute peak interval for the entire month.


It's important to note that when demand charges are implemented and therefore the energy (kWh) rate is reduced, the ability for solar energy to reduce the bill is equally effected.


Demand Control Options


Solar power reduces demand from the grid during the daytime, but is not able to reduce demand charges effectively. This is because the peak demand charges apply during the night time.


To automatically reduce power use during peak times, a device such as a demand controller or a smart breaker panel can be installed. These devices automatically turn off circuits when the demand for power exceeds a set limit.


Battery power systems are also effective at reducing peak demand charges. Batteries use stored energy to provide power on demand, reducing grid power use. The battery system may be configured to reduce demand at all times, or be based on a schedule around peak periods. However, this option is not particularly suitable for homes with all-electric heat unless the battery capacity is larger than average.


In conclusion, understanding peak demand rates and how they affect your electricity bill is important in order to take control of your energy consumption and costs. While installing a demand controller or being mindful of when you use certain appliances can help reduce peak demand charges, battery systems can also play a significant role in reducing these charges. It's important to consider the investment, goals, and potential savings when deciding which solution is best for you.


Peak demand times



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