Impact on Electricity Prices
- Reduced Wholesale Price Volatility: Peak shaving helps reduce demand during peak hours, which are times when utilities typically switch on expensive peaking plants. This leads to a decrease in wholesale price volatility because the need for these costly generation sources is diminished.
- Lowering Capacity Costs: By reducing peak demand, businesses can lower their capacity charges, which are often tied to the highest demand levels during peak hours. This directly translates into savings for industrial and commercial consumers.
- Minimizing Ancillary Service Costs: Peak shaving contributes to grid balancing by matching demand and supply more effectively, thereby reducing the need for reserve capacity and frequency regulation services. This results in lower ancillary service costs, contributing to overall lower electricity prices.
- Stabilizing Grid Operations: The reduction of peak loads alleviates grid stress, which helps maintain a more stable and reliable energy supply. This stability is crucial for maintaining consistent and predictable electricity prices.
How Peak Shaving Reduces Costs
- Demand Charges Reduction: Peak shaving involves using energy storage or on-site generation to reduce power consumption from the grid during peak periods. This approach reduces demand charges, which can be a significant portion of a commercial or industrial electricity bill.
- Energy Cost Management: By controlling peak demand, businesses can better predict their energy costs and avoid unexpected spikes in electricity bills. This predictability enhances financial planning and stability.
Overall, peak shaving plays a crucial role in managing peak electricity demand, which subsequently influences electricity price formation by reducing volatility, lowering costs for consumers, and enhancing grid stability.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-peak-shaving-affect-electricity-prices/
