Peak demand occurs at the times of day when power is used most, such as in the morning as people get their day started and when returning home from work. Demand is highest when running multiple loads (appliances) at one time, and the peak demand is the highest point measured over the billing period.
Demand charges are typical for commercial operations, but are also applied to large homes and especially homes with electric heat. A demand charge is in addition to the standard energy charge. Demand (power) is billed as kilowatts (kW), while energy is billed as kilowatt-hours (kWh). But on a regular residential rate (without a demand charge), there is only an energy charge.
Above: Billing summary for a Black Hills Energy customer.
When a utility applies the additional demand charge, the standard energy charge is reduced to balance the overall costs. This may result in a lower bill comparative, in some situations but not always. For this system to really be effective at reducing bills it is usually necessary to install a device called a demand controller, which works alongside the electrical panel to automatically turn off heating circuits and other major appliances when demand gets high. If a demand controller is not installed or not properly configured, bills might instead be higher than normal.
To reduce demand charger, the users/occupants are as much a factor as the building itself. A demand controller can limit demand to a maximum set point by turning off loads (temporarily). At a rate of $8 to $10 per kW, an 8 kW set point results in a $64 to $80 monthly demand charge. The demand limit may be reduced, but this may be easier said than done depending on the number of occupants and appliances used. If there is no demand controller, occupants must coordinate when certain appliances are used. But since the demand charge is based on the single greatest peak over a whole month, one unusually high peak would compromise the effort.
Due to the high costs of operating peak power plants, reduced demand on the system reduces costs for the utility. To learn more this and what demand peaks are, click here.
Peak Demand with Solar Power
While true that solar power will reduce demand from the grid during the day, demand is usually highest when there is the least sunshine. Therefore, solar power will not effectively reduce the demand charge. Solar will reduce the energy charge (kWh) portion of the bill only.
Solar has greater value when offsetting higher energy rates, so if energy is cheap solar is made less effective for bill reduction. For maximum savings with solar, it is generally preferable to have a regular residential rate instead of demand rates. However, the savings that a demand service might have comparatively (without solar) may be worth consideration as well when comparing all options.
Peak Demand with Batteries
As opposed to solar that generates energy to reduce the kWh portion of the bill, batteries store energy to provide the power (kW) for operating loads on demand. One of a battery system's functions includes peak demand control, by limiting the amount of power that is drawn from the grid. Because batteries provide power at any time day or night, they can reliably reduce demand charges in addition to their other benefits.
Solar plays a more limited role in this scenario but should still be included. Installing solar makes the battery system also eligible in the federal tax credit, so the solar panels basically pay for themselves. Since solar energy won't reduce the bill much on a demand rate, a smaller solar array may be installed. Solar will maintain battery charge and keep the power on when there is a grid power outage.
When primarily aiming to reduce power bills, the most economical solution is solar panels (no batteries) with a regular residential energy charge (no demand charge). Demand controllers are effective for bill reduction only under the right circumstances.
Alternatively, when seeking the combined benefits of demand bill reduction and backup power with solar, battery systems are highly effective. There is a greater investment into a system with batteries, but the benefits are a powerful addition to a home's capabilities.