The Sneaky Way Utilities Charge Businesses for Electricity

Controlling operating expenses is a topic we discuss often with our customers. Electricity for many businesses is a significant cost, and upon diving deeper, we find that most business owners are unaware of how they are charged by their utility. Many just get the bill, make sure it is close to previous months’ bills and — pay it, accepting that it is simply a cost of doing business.

Utility Companies don’t charge you for your energy usage alone

For some business owners, simply paying the bill they receive from their utility is completely acceptable, but for others, they may be missing a huge opportunity to save money. Solar is a great way to lower your electric usage but many customers have no idea that usage alone is not the only thing they are charged for on their electric bill. There is actually another part of the bill, that depending on how you use electricity, can represent 30% to 70% of the cost.

Most people are familiar with usage (measured in kilowatts hours or kWh). It is how many times your meter spins around or how many units of energy you use in a month. And it’s the most common way of billing for residential homeowners. The lesser know portion of the bill is called “demand” (measured in kilowatts or kW). Demand is the amount of capacity that the utility has to have online in order to meet your electrical needs.

You pay for demand. What does that mean?

We often explain demand as a speeding ticket. The more energy you use at one time (the faster you drive your car), the more you pay. Imagine that you show up at your business in the morning and turn on every piece of equipment at once. There would be a huge spike in electricity needed to power all of this equipment. With demand, the utility will charge you for the highest spike in a 15 or 30 minute period during the last billing period.

Let’s say the scenario above caused a demand spike of 100kW. Now imagine you turn equipment in a strategic fashion over the course of an hour so that only a few pieces are creating a spike. This would lower your demand significantly. Assuming it could cut demand in half, 50kW, you could see a bill that is $600 to $1,100 cheaper (demand rates are typically $12/kW to $22/kW).

How does Demand management work?

Many companies we partner with specialize what is called Demand management to control when HVAC units and other machinery turn on in order to avoid high demand charges. Solar itself can reduce demand if your peak aligns with times when the solar is on but for many this may not be the case. Be wary of anyone that guarantees you a significant reduction in demand when installing solar. The only way to ensure this is the case is to couple solar with batteries that can “peak shave” the highest spikes and reduce demand charges.

We, at Venture Solar, are always available to answer your questions, and guide you on our journey towards a better planet. If you have any questions, please contact us.