Managing Capacity Costs this Summer

Summer is officially here and with that comes heat and more electricity usage for your business.

Did you know that curtailing your usage on certain summer days, for only a couple of hours can reduce your annual energy spend? – That is why it is very important to look at when your energy is used.

Peak Demand

Peak demand or peak load is defined as the highest electrical power demand on an electrical grid over a specific period of time. Peaks occur when the majority of buildings on an electrical grid are using the most electricity or power at the same time (usually in the middle of the day).  Each facility, home, business, etc. requires a certain amount of electricity to power everything in the building at any given time. It is one of the major responsibilities of the ISO is to ensure there is enough electricity available in the grid to meet the demand of these buildings. 

If multiple buildings were to use all of their powered devices at one time, but there was not enough electricity available in the grid to meet this demand, the power from the grid could be overdrawn, which, in turn, would lead to disastrous brownouts, blackouts, and other unexpected outages. 

Did you know that the amount of money you pay for the capacity portion of your electrical supply is determined by your building’s usage during these hours of peak demand each year?  These are called peak hours or peak days and occur when the most electricity is being used by buildings on the grid (peak demand) during the hottest days of the year.  Fortunately, you can curtail your electricity usage at specific times on these days so your energy demand & usage appears lower than it actually is, which results in cheaper capacity costs for the following year. 

Peak Demand Defines your Capacity Costs:

The capacity price component of your electrical supply is defined by the amount of electricity that needs to be available to meet the demand requirements of your facility.  The ISO calculates the cost of this (your capacity tax rate) by multiplying the energy your facilities uses in kWh by your operation’s demand requirements.  To measure your usage, the ISO relies on something called a capacity tag. 

Capacity tags are small devices that live inside of the electrical meters on every building and house.  Their purpose is to calculate and evaluate a buildings’ daily usage and peak demand required to power it.  The information the capacity tag collects is taken by the ISO and factored into the grid’s peak usage calculations (how much power must be on hand to meet total demand), your capacity costs & tax rate, and much more.  The capacity tax rate is passed on to all customers to ensure grid reliability and to prevent unexpected outages.   

To capture your demand and usage, the ISO takes a snapshot of your capacity tag on peak days where the most energy is being drawn from the grid.  These peak days usually occur in the middle of the day on the hottest day(s) of the year, usually during the summer months.   

While each ISO region uses some form of peak demand to calculate capacity costs, each one handles it slightly differently. For example: 

ISO-NE: Determined by a snapshot of your usage during the hottest hour of the hottest day of the year (Peak Day) 

NYISO: Same process as ISO-NE 

PJM: Determined by a snapshot of your usage averaged over five Peak Hours (the hottest hours of the hottest days where power usage is highest across the grid), which are totaled and averaged by the ISO  

A strategic approach for your capacity costs will help control your energy budget this summer and into the future.

To learn more, contact your Energy Advisor today. 

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