The way that commercial and industrial facilities pay for electricity is changing. With the rapidly shifting and increasingly complex connection between electricity usage and costs, it can be challenging to determine the best strategies for controlling rising electricity costs. Here are some of the most common and costly misconceptions.
Assumption: Energy keeps getting more expensive.
Energy rates have actually decreased, but demand charges are on the rise.
Due to factors such as inexpensive natural gas and widespread adoption of renewables, the cost of generating electricity has actually declined or stayed flat in recent years. As a result, the rates charged for each unit of electricity consumed have generally trended downward.
But if energy rates are lower and the facility isn’t consuming more electricity, why do utility bills keep going up? The answer lies not in the cost of energy, but in the cost of the system that delivers it. The electric grid must be built and maintained to deliver the maximum amount of power demanded at any given time, and to cover the cost, utilities charge businesses separate charges for energy used during short periods of high demand. These are called demand charges.
Demand charges are based on the single point during each billing cycle when your energy use is the highest. For the average business in California, demand rates have increased by 75 percent over the last decade. Due to the aging grid infrastructure and constrained capacity during peak times, the cost of demand — not energy — is rising, and can account for between 30 and 70 percent of a commercial electricity bill. This means that simply reducing total energy consumption may not be the best way for facilities to reduce costs. Instead, facility managers may need to consider ways to lower peak energy usage, reducing demand charges.
Assumption: Energy projects are expensive and capital intensive.
It is possible for facility managers to access savings with intelligent energy storage. Many commercial facilities have attempted to lower their electricity bills with equipment upgrades and retrofits such as LED lighting, HVAC controls, or motor and pump upgrades. While these can make a big impact on overall energy consumption, they often involve high upfront costs or long payback periods.
However, equipment upgrades only address a portion of a facility’s energy savings potential, overlooking operational inefficiencies such as firing up machinery all at once or incurring avoidable demand charges. These types of operational issues are typically hard to find, but inexpensive to fix. Rather than replacing costly building systems and equipment, facility managers can access savings with intelligent energy storage, which automatically targets costly demand peaks. With intelligent storage systems, users can also access sophisticated energy intelligence software that can detect and notify users about operational inefficiencies in their building or building portfolio, providing additional opportunities for cost savings beyond storage. Solutions that combine the capabilities of energy storage hardware and energy intelligence software are much lower cost than traditional energy investments. For example, one of the frontline companies in the energy storage market, Stem, requires no upfront capital.
Assumption: Reducing demand costs requires staff time and manual effort.
Actually, with energy storage facility managers can automatically reduce demand and generate demand response revenue with no extra staff time and no change to operations.
Facility managers need to consider ways to curb peak demand usage to avoid massive exposure to rising demand costs, but historically, few demand reduction solutions have been available that do not cause operational disruptions and require manual effort. Since most facilities have little operational flexibility or staff resources to implement demand management strategies, demand charges have largely gone unchecked.
Intelligent energy storage is a unique demand management tool that is simple to install and runs automatically in the background without impacting operations or requiring staff oversight. Software-powered storage takes a building’s historic and current energy usage, rate tariff, and local weather forecasts to learn, and then predict the facility’s energy patterns, lowering energy demand automatically at the precise moments when a peak occurs. The result is effortless bill savings.
This Quick Read was submitted by Andrea Sanders, marketing specialist, Stem. Stem is a provider of intelligent energy storage. Find her original blog post here.
Click here to learn more about energy storage in commercial facilities at Understanding the Revolution in Energy Storage
