It’s not cheap to maintain grid infrastructure. It takes money to build, update, and operate the wires, poles, towers, and meters that make up transmission and distribution systems. In the U.S., over the past 30 years, utility spending has increased due to aging power delivery systems, more transmission infrastructure for renewable energy generation, and new technologies to increase grid operational efficiency, reliability, resilience, and security.
Major U.S. utilities’ annual spending, by spending category (2012-2021)
cents per kilowatthour of electricity sales, in real 2022 dollars
Energy providers in Europe are also under pressure to maintain a reliable grid while managing energy demand.
High demand peaks require larger capacity generation, transmission, and distribution systems. Demand charges are a demand-side management strategy that utilities use to cover the costs of maintaining and upgrading the electrical grid to handle peak loads. Utility demand charges are based on the highest level of power demand during a billing period, aimed at covering the costs of maintaining grid infrastructure and encouraging load management. By imposing demand charges, utilities encourage customers to manage and reduce their peak demand, thereby promoting more balanced and efficient use of the electrical grid.
For commercial and industrial customers, including EV charge point operators (CPOs), peak demand charges can drive up operating expenses and shrink profit margins. Managing peak demand is crucial to minimizing these charges and reducing overall electricity costs. Implementing strategies such as smart charging, energy storage, and load management through an energy management system (EMS) can help mitigate the impact of demand charges and lead to substantial cost savings.
Want to learn more about how Sparkion helps charge point operators reduce demand charges?
What is a demand charge?
A utility demand charge is a fee imposed by electricity providers based on the highest level of power demand (measured in kilowatts, kW) that a commercial or industrial customer uses during a billing period. Unlike energy charges, which are based on the total amount of electricity consumed (measured in kilowatt-hours, kWh), demand charges focus on peak power usage.
While the specifics of how demand charges are structured may vary by region, the fundamental concept of charging based on peak power usage is a common approach used by utilities. For example, in the UK, commercial and industrial electricity tariffs often include demand charges, referred to as capacity charges, based on the maximum demand recorded during peak periods. German utilities also impose demand charges on industrial customers to manage grid reliability and encourage efficient energy use. Meanwhile, France applies demand charges to industrial customers, with tariffs based on peak power usage and differentiated by voltage levels.
Demand charges are typically calculated based on the highest average power usage over a specified short interval, often 15 minutes or 30 minutes, during the billing period. This peak demand period determines the demand charge for the entire billing cycle. For instance, if a facility’s peak demand reaches 500 kW during a billing period and the demand charge rate is $15 per kW, the demand charge would be $7,500 for that period.
Utilities use this measure because high peaks in electricity usage require them to maintain infrastructure capable of meeting these peaks, even if they occur infrequently. This backup infrastructure can include upgrading transmission lines and substations to handle higher loads, as well as dispatching natural gas-fired peaking plants, also known as peaker plants, which can be ramped up quickly to meet sudden increases in demand. In extreme cases, utilities may implement controlled rolling blackouts to prevent grid failure during peak demand periods. Utilities can also slightly lower the voltage supplied to consumers to reduce demand without significantly impacting service.
However, utilities are increasingly employing new technologies such as large-scale battery storage systems to store excess electricity during periods of low demand and release it during peak periods. These energy storage systems can be charged with solar and wind energy to deploy power to meet peak demand during times of low clean energy production.
Utilities also look to reduce demand during peak periods by temporarily cutting off or reducing power to certain non-essential loads through agreements with large commercial and industrial customers. With more extreme weather, economic growth, and intermittent renewable energy sources, levels of available power and the need for it can drastically change in an instant. Utilities need as much flexibility as possible to maintain a reliable grid and avoid outages. To overcome these challenges, utilities have implemented a strategy known as demand side management, which incentivizes customers to shift their energy demand in return for increased grid stability. Consumers are incentivized to reduce or move their energy usage during peak periods through demand response programs like time-of-use rates or direct payments. EV fleet owners, fueling stations, and other charge-point operators have an opportunity to reap financial benefits by participating in these programs.
These components work together to ensure a reliable electricity supply, maintain grid stability, and manage costs associated with peak demand. By leveraging these tools, utilities can effectively handle fluctuations in demand and provide continuous, stable power to consumers.
How do demand charges impact EV charging sites?
For many commercial and industrial customers, demand charges can constitute a significant portion of their overall electricity bill. Managing energy use is particularly important for EV charge point operators due to the high power requirements of charging stations.
Fast chargers, also known as DC fast chargers, are high-power charging stations that reduce the time needed to recharge electric vehicles compared to standard Level 1 and Level 2 chargers. Utilizing direct current (DC) instead of alternating current (AC), these chargers can deliver power at rates ranging from 50 kW to over 350 kW, allowing an EV to achieve an 80% charge in as little as 20 to 40 minutes, depending on the vehicle’s battery capacity and the charger’s power output. The increasing adoption of EVs, driven by advancements in battery technology, governmental incentives, and a growing focus on reducing carbon emissions, has fueled the popularity of fast chargers. Their ability to quickly recharge EVs makes them particularly appealing for long-distance travel and urban environments, where drivers seek convenience and reduced downtime, thereby supporting the broader transition to electric mobility.
However, fast chargers can significantly increase peak demand due to their high power draw, leading to substantial demand charges. Also, operating multiple chargers simultaneously can further elevate peak demand, increasing the potential for high demand charges. Therefore, it’s imperative that EV charging operators make plans to reduce their peak demand to avoid utility fees and enable successful business.
EV charge point operators need to reduce their demand charges because these charges can constitute a substantial portion of their overall electricity costs, driven by the high power demands of fast charging stations. Peak demand charges are based on the highest level of electricity consumption within a billing period, and the rapid, simultaneous charging of multiple vehicles can significantly elevate these peaks. By managing and reducing these demand peaks through strategies like smart charging schedules, energy storage integration, and load management, operators can lower their operational expenses. This reduction in demand charges not only improves profitability but also allows for more competitive pricing for customers, enhances the sustainability of the charging infrastructure, and supports the overall stability of the electrical grid by mitigating extreme load variations.
How can charge point operators and fleet owners reduce demand charges?
Electric vehicle CPOs and fleet owners can reduce utility fees through various load management strategies:
- Upgrading equipment: Installing more energy-efficient equipment and optimizing energy use can help lower peak demand.
- Customer incentives: Another strategy is to offer pricing incentives to encourage EV owners to charge during off-peak hours, helping to spread the load over other periods of time
- Peak shaving: Staggering operating high-power equipment can also reduce peak demand through the use of energy storage systems, or by adjusting operational schedules.
- Demand response programs: Operators can also participate in demand response programs to lower their demand charges by reducing usage during peak periods in response to utility signals.
- Energy storage: Integrating battery storage systems allows operators to reserve energy during off-peak times and use it through high demand periods, effectively shaving peak loads and reducing demand charges.
Why use Sparkion’s energy management system?
Sparkion’s AI-driven smart energy management software directs its proprietary controller to facilitate seamless and continuous communication between all onsite assets and the grid for multiple use cases.
For one, Sparkion’s SparkCore™ onsite energy management system helps align business operations with grid conditions, ensuring your battery charges before and deploys during your peak demand times to reduce your grid consumption and avoid extra utility costs for the highest profit margins.
Furthermore, understanding when your site uses the most electricity is critical for avoiding demand charges and high utility bills. Predicting future demand patterns through peak load forecasting can inform your operational and capacity planning decisions. Sparkion’s intelligent SparkPredict™ tool analyzes your site’s energy use (from EV chargers, renewable assets, batteries and more) for a comprehensive understanding of traffic patterns. This intelligence directs the SparkCore™ EMS to better prepare by automatically implementing—and continually refining—a personalized site plan. With efficient, optimized energy usage and consumption, you can enjoy maximum available power with minimal operational energy costs.
Unlike other controllers, SparkCore™ can take into account solar forecasting/production data and capture real-time site and grid energy use in sub-second intervals. Sparkion’s intelligence can analyze all this data and decide where to send power according to a customized business plan to help sites become more cost-effective and profitable.
