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In the past, calculating dollar savings of an energy upgrade involved multiplying annual kWh savings by the average electric rate (i.e., total annual spend divided by total annual kWh). While this method may provide reasonable results for simple lighting upgrades that proportionally cut both kWh and kW, it may not be well suited for other options, especially in locales where demand accounts for more than 20 percent of annual electric bills. Here are some examples of how to account for demand charges when calculating energy upgrade savings.
One example is converting sunlight into electricity through solar photovoltaic (PV) panels. A combination of falling panel pricing, lucrative incentives, and innovative financing now allows customers to buy the power instead of the panels. For residential customers who pay a flat $/kWh rate and no demand charges, this may be a great way to cut an electric bill.
At many commercial facilities, however, greater care is needed in evaluating PV's economics. Many PV vendors are selling systems as though all electric rates were like residential rates, instead of taking the local tariff structure into account. In one recent case, an industrial refrigeration facility received a proposal to have PV panels installed on its large flat roof and buy the power at a fixed price for the next 20 years. That price was lower than the facility's all-in average electric rate, which had demand charges folded into it.
An analysis of the facility's hourly load profile across a year showed, however, that — due to its operation — it had typically peaked by 10 a.m., when output from PV panels would be minimal. The true value of the PV electricity was then found to be 33 percent lower. To reflect that fact, the vendor was asked to drop his price. Instead, he dropped the project. Studies performed on other commercial buildings found comparable results: Both office and apartment buildings peaked hours after PV output had dropped. As peak demand charges rise, this "solar dilemma" will only worsen.
Where demand charges are high, similar impacts may be seen for other efficiency options. Occupancy sensors turn off lights when rooms are unoccupied. While saving after-hour kWh, kW reductions need to be simultaneous with the time of a facility's peak demand. That peak may, however, occur when occupancy is highest and the sensors cannot shut off many lights.
Variable speed drives reduce motor kW load at times when air and/or water flow may be cut back when less HVAC service is needed. But even one hot (or very cold) day in a month may require the motors to run at full speed for an hour or two when the building load is peaking, thus adding to a high monthly demand charge.
Daylighting systems cut electric light wattage to compensate for sunlight entering a space. Depending on building orientation and dimming systems, significant kWh savings have been realized. A close look at the hourly load profile for a building designed to maximize daylight, however, showed that, to minimize midday glare, shading systems were used that caused electric lighting wattage to rise between 2 p.m. and 3 p.m., about the same time as the overall building peak. The same thing occurred on dark rainy days when outdoor light levels dropped. While some peak demand reduction did occur, it was a fraction of what was expected. As stated in a 2005 study on daylighting, "demand savings ... would be much smaller, since it only takes one 15-minute period ... in a given month to set the peak demand charge for the month (as well as the rolling demand charge [i.e., ratchet] for the year)."
How To Account For Demand Charges When Calculating Energy Upgrade Savings