The Ups and Downs of Peak Management

Electric Rate Structure Evolution

In the postwar expansion of the 1940s and 1950s, such demand charges became standard practice for most large commercial and industrial customers. In the 1960s, enabled by advances in electrical metering technology, North America saw the first time-of-use (TOU) tariffs for electrical customers. As with demand charges, these rate structures were initially applied to large industrial and commercial customers. They were intended to reduce the system-wide peaks on the electrical grid by incentivizing electrical use during non-peak hours. Spurred by the energy crisis of the 1970s, the use of both TOU rates and capacity charges expanded.

Now, as we enter the second half of the 2020s, commercial – and even residential – electric rate structures can be quite complex, incorporating forms of both time-of-use and capacity charges. Utilities become more sophisticated in structuring tariffs to accurately reflect a customer’s peak usage. They are also further incentivizing customers to manage both the size and the timing of that peak.

At the same time, as more regulations, incentives, and sustainability initiatives are encouraging buildings to move away from fossil fuels and toward electrification, utilities that are concerned with capacity constraints are raising the cost to connect additional capacity to their grid. Building owners may need to integrate a peak management strategy into electrification projects to stay within their current capacity constraints.

Approaches

There are two high-level approaches involved in electrical cost management strategy: Load Shedding and Load Shifting.  A successful strategy will use elements of both.

Load Shedding

Load Shedding is exactly what it sounds like: an approach centered around reducing overall electrical usage. Building operators often accomplish this with efficiency upgrades, asset renewal of large equipment, or operational changes that lower the peak electrical usage as well as the overall usage of the building.

Load Shifting

Load Shifting involves changing the timing of electricity usage, so that it occurs at a time when the electric rate, capacity charge, or both are lower. Total energy consumption is not necessarily reduced with a load shifting approach, but because of the tariff structure, the total cost of that consumption is less.

When time-of-use tariffs are a factor or when capacity charges change based on the time of the peak, being able to control the timing of a building’s energy use can have a large impact on utility charges.

Technologies

There are as many different ways to implement one of these approaches as there are unique tariffs. Some of the more commonly used technologies are listed below. A successful peak management strategy may incorporate more than one of these.

Battery Energy Storage Systems (BESS) are the simplest form of load shifting equipment. They use on-site battery storage to provide at least part of a facility’s power needs during peaks or when rates are highest. Then, when rates and peak charges are lower, typically during night hours, the batteries are recharged.

Thermal Storage is another form of load shifting. In hours when electricity costs are lower, thermal storage technologies build up a reservoir of either heating or cooling capacity. It is then utilized during times when costs are higher. Ice storage, hot brick or phase-change thermal storage, and large holding tanks can all be incorporated into a peak management strategy.

Solar Photovoltaics (PV) are employed to generate on-site power, thereby shedding load from the electric utility. Used in conjunction with other technologies, such as BESS, the power they generate can be stored for use at an optimal time.

Other On-Site Generation such as natural gas generators and combined heat and power (CHP) plants can be used to reduce the load seen by the utility’s electric meter. However, these approaches have become less viable in recent years due to increasing (and uncertain) fuel rates as well as national, state, and local regulations on combustion emissions.

Predictive Load Shedding is becoming more popular where capacity charges are based on a customer’s use at the time of a system-wide peak. In these cases, it is advantageous to anticipate when these coincident peaks may occur and shed or shift load during those times.

New Technologies

New Technologies are always being developed for these sorts of applications. Gravity batteries, next-generation pumped hydro, building-integrated photovoltaics, and new battery technologies such as flow batteries and sodium-sulfur are just some of the products that may play a role in peak management strategies in the near future.

Many Sizes, Many Fits

For any peak management strategy to be successful, it needs to be tailored to the specific building or facility. Consideration includes the electric rate structure, the use and operation of the building, existing equipment, physical constraints, and available incentive programs. These factors should shape the balance of approaches (load shedding/load shifting) and the technologies that are applied.

There is no one-size-fits-all approach to peak management. What is successful at one location might not be the right approach elsewhere, even right next door.

To illustrate the wide range of peak management strategies, let’s look at a couple of simplified examples:

School Campus – Long Island, New York

This site has an electricity tariff structure in which both the energy charge and the demand charge are based upon time of use. The table below shows the significant savings available from shedding electrical load or from shifting loads into the off-peak part of the day.

In this example, every 100kW of demand shifted from the Peak period to the Off-Peak period generates $4,500 in monthly savings. Similarly, moving energy usage from Peak to Off-Peak saves more than 80% of the $/kWh charge. With this rate structure in place, this school chose to install photovoltaic (PV) panels and a battery energy storage system (BESS). Thermal storage was not a good fit in this situation. To be effective, it would have required significant replacement and modifications to the existing HVAC systems.     

Being a suburban school district, they already had enough roof space to affordably install PV. (Also notable is the fact that while federal tax credits for PV are being phased out in the US, this school district was able to start construction before July 4, 2026, to safe-harbor the tax credit for the school district).

With this new equipment and an integrated peak management strategy, the school district uses the PV during the day to shed load, especially during the Peak period. The BESS is recharged during Off-Peak hours and discharged during the day to reduce both the monthly demand charge and energy use charge.

Hospital  – Toronto, Ontario

A large, full-service hospital in the Toronto area was interested in reducing their annual electricity costs. Their electricity costs are the sum of three charges: their actual usage, a monthly capacity charge related to the monthly peak, and a Global Adjustment (GA) charge.

The Global Adjustment is a somewhat novel approach to equitably distributing the cost of electrical utility infrastructure. Large customers pay their share of these costs based on their percentage contribution during the top five peak hours of the previous 12-month adjustment period. In other words, if a customer’s average demand during the five peaks is 2%, then they will be charged 2% of the GA for the coming 12 months.

For most customers with a Global Adjustment, this portion of their bill can be 30-40% of their total electricity costs. It is clearly advantageous for a GA customer to be able to anticipate these system-wide peaks and lower their electricity usage during those times.

This hospital had previously implemented many energy efficiency measures. Due to their 24/7 healthcare operations, they were not looking for additional load-shedding strategies. Instead, they adopted a new load-shifting strategy that uses chilled water storage . Depending upon the time of year, chilled water can be produced when time-of-use rates are lowest and when Global Adjustment peaks are not likely to occur. This stored energy is then used during the most energy expensive times of the day and when GA peaks are likely.

At this hospital, producing and storing  chilled water overnight shifts cooling to nighttime hours, creating savings by using electricity when it is less expensive and lowering the subsequent GA charges.

Commercial Real Estate High Rise – Montreal, Quebec

A high-rise office building in an urban setting has its own challenges based on location and available space, and it operates differently from a school or hospital facility. A successful peak management strategy must take operating conditions into account along with the utility’s tariff structure.

In Montreal, the electric utility does not currently utilize time-of-day pricing for consumption or demand charges. Instead, commercial and industrial customers pay for their monthly consumption and their monthly peak demand. Occasionally, load shifting strategies can be used to lower a customer’s monthly peak demand. But without an incentive based on the timing of electricity use, most load shifting strategies do not make economic sense.

However, commercial and industrial electric customers in Montreal who want to further lower their utility bills can choose to join the utility’s Demand Response program. Customers who are enrolled in this program receive credit for reducing their power use during peak demand events. Savings are calculated as $/kW below baseline during the event windows.

Most buildings in Montreal are at least partially heated with electricity. This, combined with a more northern climate, means that unlike most urban centers in the United States, the winter months are when the electric utility sees the highest system-wide demand. As expected, Demand Response events in Montreal always occur during the winter months, typically spanning the hours of 6 am to 9am, and 4pm to 8pm.  

Office Buildings Have an Advantage

One advantage that commercial office buildings typically have over other facilities, such as schools and hospitals, is the ability to load shed during especially costly times of the day. For a commercial high-rise in Montreal, building systems and controls are modified to:

• Use the existing gas boiler to offset as much electric heating as possible.
• Raise heating setpoints in the building during the time before the three or four hour window and then use lowered setpoints during the peak demand event.
• Temporarily reduce ventilation during the peak demand event.
• Operate the emergency generator as supplemental power during peak demand events.
• Control some lighting and HVAC zones with occupancy sensors so that unoccupied spaces are not unnecessarily using power.

In addition to monthly utility bills, peak management strategies may be needed when considering building infrastructure projects. To discourage additional load on their distribution systems, many electric utilities, especially in urban centers, have significantly increased the cost of adding to an existing building’s capacity. For a commercial high rise, or another building in a dense urban location, a peak management strategy that considers all factors may be a necessity before taking on new projects that install additional equipment.

Peak Into the Future

A peak management strategy should be incorporated into the operations of any building that has any electric rate more complex than a fixed $/kWh. These days, that applies to most large buildings.

Unfortunately, there is no “one size fits all” solution to peak management. The right strategy must incorporate not only the electric tariff structure, but also unique factors of the building’s use, size, location, and existing equipment.

Utilities get increasingly creative with how they bill their customers. Customers must get creative with the way they manage their energy use.