Battery energy storage systems (BESS) have a significant impact on reducing demand charges for businesses, particularly commercial and industrial customers who face substantial demand-related fees on their electricity bills.
What Are Demand Charges?
Demand charges are fees based on the highest rate of electricity usage (measured in kilowatts, kW) during a short time interval—usually 15 minutes—within a billing cycle. Unlike energy charges (which are based on total energy consumption in kilowatt-hours, kWh), demand charges reflect peak power demand and typically account for 30% to 70% of a commercial electricity bill. These charges exist because utilities need to maintain infrastructure capable of meeting peak load demands, and they pass costs to customers based on their peak usage.
How Battery Storage Systems Reduce Demand Charges
Battery energy storage systems impact demand charges primarily through a process called peak shaving:
- Peak shaving involves charging batteries during off-peak hours when electricity demand and rates are low.
- During peak demand intervals, the batteries discharge stored energy to power the business load.
- This reduces the peak power drawn from the grid, effectively lowering the maximum demand recorded by the utility.
- Consequently, businesses avoid or reduce demand charge fees tied to their highest peak consumption.
Because demand charges are based on the peak rate of consumption, even short spikes can lead to high fees. Battery storage smooths these peaks by supplying power at critical times, which lowers the peak demand revealed in the billing period.
Benefits to Businesses
- Cost savings: Demand charges can be a third or more of commercial utility bills, and batteries can significantly reduce or eliminate these charges, leading to substantial savings.
- Improved ROI for new loads: For businesses adding high-demand equipment, such as electric vehicle (EV) fast chargers, battery storage helps manage the new peak loads to prevent large increases in demand charges.
- Backup power and resilience: Besides cost savings, BESS provides backup power during outages, protecting against productivity losses and equipment damage.
- Increasing utility demand charges: Demand charges are rising in many areas, making battery storage an even more attractive investment to manage these growing costs.
Economic and Technical Considerations
- The cost-effectiveness of battery storage to reduce demand charges depends heavily on the utility’s demand charge rates. Studies suggest that demand charge rates above approximately $15/kW make battery storage economically viable.
- Battery systems with shorter discharge durations (e.g., 30-60 minutes) often provide the best payback since typical peak demand periods are relatively short.
- The size and power capacity of the battery system must be optimized to adequately cover the peak demand intervals without oversizing, which would increase costs.
Summary
In summary, battery energy storage systems reduce demand charges for businesses by storing energy during low-demand periods and discharging during peak demand, thus lowering the maximum grid power draw. This peak shaving capability can dramatically reduce a business’s electricity bills, especially in places with high demand charge rates or for businesses with variable or high peak loads such as EV charging stations. Batteries also add value by enhancing energy resilience and enabling better management of onsite renewable energy.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-battery-energy-storage-systems-impact-demand-charges-for-businesses/
