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Your Electric Bill: The Difference Between Demand and Usage

Key Points
  • Kilowatt refers to the rate at which energy is used; kilowatt-hours refer to total energy consumption.
  • Facilities pay a demand charge on the peak rate at which they use electricity.
  • Understanding your load profile is the first step in finding ways to reduce demand charges.

electric_meter.jpgUtility bills for commercial and industrial facilities often seem detailed and confusing. If you look closely at your bill, however, you may learn a few things about the way energy is used and how you are charged for it.

For example, the concepts of kilowatts and kilowatt-hours are often misunderstood. Kilowatts (kW) refers to the rate at which energy is used (demand), while kilowatt-hours (kWh) measures overall consumption (usage). Understanding these concepts will provide you with important insight into ways you can lower monthly energy costs.

To understand the difference between demand and usage, it is best to use an example. A motor rated at 10 kW and operating for eight hours will consume 80 kWh. Five of these motors operating all day will use 400 kWh, which is the amount of energy the motors will use during an eight-hour period. You are charged per kWh for usage. At an average rate of 10 cents per kWh, the cost to run the motors for a day would be $40. For this scenario, your facility is consuming power at the rate of 50 kW. This is the total rated power of the five motors. This rate of using power is also called demand. Commercial and industrial users pay a demand charge. Typically, demand is calculated in 15-minute intervals. Your highest demand interval in any given month is your peak demand, which is the basis for your monthly demand charge.

Utilities instituted demand charges because electricity, unlike many other commodities, must be used immediately and cannot be stored for later use. Utilities must maintain excess capacity to meet cyclical periods of high or peak demand, which typically occur in the afternoon hours. Making this excess capacity available is very expensive, and utility customers must share in the cost burden.

Reducing demand charges

The most effective way to minimize peak demand is to understand your facility's load profile, which describes how you use energy over time—typically a 24-hour period. Once you have established your load profile, consider the following strategies for reducing peak demand:

  • Adjust thermostats to reduce energy use for air conditioning and install dimmers and occupancy sensors to minimize lighting demand.
  • Adjust work schedules to reduce energy use during peak demand periods, typically between the hours of 12 p.m. and 5 p.m. on weekdays.
  • Install automatic sequencers on your system's power supply to prevent high energy use equipment from starting simultaneously.
  • Motors operate at a constant speed, despite load variations in the devices they operate. Install variable frequency drives to reduce demand by matching motor speed to load requirements.
  • Install an energy-management system (EMS) to coordinate energy use in your facility and minimize peak demand.
  • Consider thermal energy storage systems, which store chilled water at night (when demand is low) to provide cooling during the day.

While every facility is unique, understanding the key factors affecting your energy use can help you choose solutions that will reduce peak demand and lower your energy bill.

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