Lorem ipsum dolor amet, consectetuer adipiscing elit. Aenean commodo ligula eget dolor massa. Cum sociis natoque penatibus et magnis dis parturient montes, nascetur ridiculus mus.


Follow Us:


Commercial Demand Charge

Commercial Demand Charge

One of the most frequent topics that I encounter while talking with customers about energy monitoring is the importance of measuring and correcting power factor. In a practical sense, power factor is a ratio of the amount of electrons actually being used by a system divided by the amount of electrons charged to you by your utility. These two values are often very different, especially in commercial buildings where you see large and/or inefficient equipment. While power factor correction gets the majority of attention, other opportunities can provide a less expensive means of achieving efficiency and savings, like demand optimization.


Effects of a Demand Charge (kW)

Demand is a utility measurement of maximum power, peak demand is a the maximum 15 minute average of demand during a billing period, and reducing your peak demand is critical. Unlike residential customers, commercial and industrial customers are charged for kWh and kW, but they are not treated equally. The commercial cost for electricity from Xcel Energy in Denver, CO might be broken down like this:


Charges for energy (kWh):

  • Secondary General = (kWh)*($0.004730)
  • Elec Commodity Adj = (kWh)*($0.0319)

Charges for peak demand (kW):

  • Distribution Demand = (kW)*($4.84)
  • Gen & Transm Demand = (kW)*($8.00)
  • Trans Cost Adj = (kW)*($0.21)
  • Demand Side Mgmt Cost = (kW)*($0.50)
  • Purch Cap Cost Adj = (kW)*($2.13)
  • CACJA = (kW)*(1.28)

What do all of those different demand costs refer to? I’m not totally sure, and I decided it probably wasn’t worth knowing. What I do know is the charges quickly add up. Let’s look at an example [small] commercial building in Boulder, CO.

Energy Data Image

30 Day Energy Curve of Small Commercial Building


  • Energy: 21,600 kWh, Cost = $791.21
  • Peak Demand: 65 kW, Cost = $1102.40

That means about 58% of the electricity bill for this building comes from peak demand! While it may be more difficult to reduce peak demand, it can have a greater impact on your energy costs than reducing kWh alone. Coincidently, reducing your baseline kWh opens the opportunity for a reduction in peak demand.


Common Methods of Reducing Peak Demand

    1. Optimize multiple HVAC systems to avoid simultaneous operation.


This idea can be applied to any energy demanding equipment, such as air handlers, water pumps and blowers, heaters, motors, etc…, but the goal remains the same — try not to turn everything on at once. For example, if you can stagger the operation of five 10 kW compressors, so only one compressor is running at any given time, you have potentially reduced your demand by 40 kW. Applied to our example Xcel bill above, that is a $678.40 savings each month. Understandably, this example is gaining popularity with convenience store franchises.

    1. Utilize renewable energy sources and battery storage during times of peak demand.


Photovoltaics are a very effective way to offset energy cost, and can be effective at reducing peak demand… if the peak demand happens to occurs at midday…and the sun is shining brightly every day. Okay, so there are a few flaws with using PV to reduce peak demand, but in combination with battery storage it can be a very effective resource.

    1. Implement a real-time alert system to inform facility managers of unexpected spikes in power.


An alert system is very important because, after the first two examples have been applied, things can go wrong. Waiting a full month to realize each of the five 10 kW compressors was active at the same time on Friday night just cost you $678.40. Ongoing power monitoring that compares your expected demand to the actual demand is a good way to catch mishaps, and can be an inexpensive insurance policy on your improvements and optimizations.

If you are just beginning to look at improving your energy efficiency, make sure to get a firm understanding of your current demand profile. You may be able to make small adjustments to your demand profile that have a faster return on investment than power factor correction techniques.


Written By Ed Pantzar Account Manager at eGauge Systems