Battery energy storage systems (BESS) help reduce demand charges mainly through a process called peak shaving, which smooths out the customer’s power consumption peaks that utilities use to calculate demand charges.
Here’s how it works in detail:
- Demand charges are fees commercial and industrial customers pay based on their highest power usage over a short interval (typically 15 minutes) during a billing cycle. This peak usage determines the demand charge, which can be a significant portion (often 30-70%) of the electricity bill.
- A BESS stores electrical energy during off-peak times when electricity demand and costs are lower. It then discharges this stored energy during peak demand periods, reducing the power drawn from the grid at those critical times. This reduction in peak grid power demand lowers the recorded peak load, which directly cuts the demand charges on the bill.
- By discharging during peak demand intervals, the battery system flattens the load profile of the facility, preventing sharp spikes in electricity use that result in high demand charges. This is especially valuable for businesses that have high, short-duration power spikes that cause large demand charges.
- Besides reducing demand charges, battery systems can also increase self-consumption of on-site renewable generation (like solar), provide backup power, improve power quality, and delay costly grid infrastructure upgrades.
- Battery storage systems are particularly cost-effective for demand charge reduction when demand charges exceed roughly $15 per kilowatt (kW), which is common for many commercial customers in the U.S.
- Lithium-ion batteries are the preferred technology for this purpose because they can deliver high power quickly and have favorable economics, resulting in payback periods under five years in markets with high demand charges.
In summary, battery energy storage systems reduce demand charges by charging during low-cost, off-peak times and discharging during peak periods to avoid high grid power draws. This peak shaving strategy not only lowers the facility’s maximum demand charge but also optimizes energy costs and offers operational flexibility to commercial and industrial users.
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