The Cheapest Kilowatt Might NOT Be The Kilowatt You Don’t Use
Contrary to popular belief, the energy industry adage — the cheapest energy is the energy you don’t have to produce or use in the first place—may not be entirely accurate.
Moreover, if facility managers, energy management vendors, legislators and regulators all operate based on this prevailing adage, the adverse consequences to facility energy usage, costs and greenhouse gas (GHG) emissions can be significant.
While the adage appears to make sense on the surface, it typically involves looking at just one component of the energy equation — total consumption — which in actuality has nuances that affect the total cost.
In particular, the adage does not reflect the consequences of interval usage and the related impact of just a few peak demand periods.
Digging into the Cost Composition of Energy Bills
For many organizations, a few spikes in energy usage will cause business electricity rates to rise significantly, regardless of overall energy consumption.
Utilities must accommodate these spikes such as by paying grid operations in advance to have additional power production capacity in order to have an adequate supply ready to meet maximum periods of demand all year long. Paying for plants to be on standby ultimately impacts kWh supply costs. This factor can comprise 20% of a kilowatt hour (kWh) price, and this cost of goods is rising as much as fourfold in some areas.
So even if a facility uses considerably less energy at all other times compared to just one short billing interval used to measure demand, the facility will still pay for that delivery capability in terms of both a demand charge and a higher price for energy itself. This could be considered one of many hidden business energy costs that can silently push your business electricity costs up.
For a company that uses 400 kilowatts per month, with a 100 kW peak interval at a $7.00/kW charge multiplied by 12 months, that adds up to $8400 in additional cost. By reducing this demand charge, the company could theoretically use more energy throughout the year and still end up paying less annually.
Peak periods of demand also create the need for utilities to build out substations, transformers and wires just to be able to fulfill their obligation to meet peak demand for a limited period of time, in any given area. As a result, all customers pay for these energy rate increases.
The Additional Costs of Energy Usage
And environmentally, the need for the electricity grid to turn on more and often less efficient load-following power plants causes significantly greater GHG gas emissions and even fine particulate matter emissions. As a result, a peak day could have 50% greater emissions than an off-peak day.
Moreover, in many jurisdictions, distribution utilities can also charge a punitive “critical peak” demand charge for periods of peak societal demand — which is a pricing strategy used to discourage use during peak periods that can end up adding tremendous costs.Thus, focusing on just reducing total energy consumption does not optimize costs. Instead, companies need to look at what goes into their energy bills and figure out what exactly accounts for the most business energy costs.
Fortunately new, real-time energy management analytics can help solve this problem. Companies can analyze factors such as demand charges and figure out ways to reduce these costs, thereby lowering their bills potentially more than if they just tried to use less energy.
Request a complimentary energy efficiency assessment to find out how Artis Energy’s RTIS® energy analytics platform can provide you with the visibility and insight to transform energy from a fixed cost into a distinct competitive advantage.