Last updated June 21, 2023
Summertime in Texas brings a number of challenges for energy managers. For starters, the hot weather months of June-September generally mean added electricity usage as companies look to keep their facilities and employees cool and comfortable. Next, just as usage goes up, energy prices often rise with it as a market reaction to a high demand/tight supply dynamic.
Fortunately, as with most challenges, solutions will emerge. In this case, there’s a proven one that can help companies reduce costs while keeping their operations running smoothly and seamlessly.
Central to this solution is understanding a key component of every Texas company’s energy bill. This component, known as the monthly demand charge, has a significant impact on how much an organization pays for electricity. It’s also something often overlooked as energy managers wrestle with keeping costs in line.
Before diving into the solution, let’s first look more closely at demand charges and the role they play in determining a company’s electricity bill.
What are demand charges?
Analysis of demand charges is an important place to begin, since they can make up 30 to 70 percent of the electric bill for a commercial and industrial operation.
Electric utilities apply demand charges to cover their fixed costs, to ensure reliable supply delivery, no matter how much demand is placed on their system.
Demand charge tariffs vary in amount and application across the U.S. The Electric Reliability Council of Texas (ERCOT), which manages the deregulated electricity market for 75 percent of the state, calculates the charge for large business customers with Interval Data Recorder (IDR) meters based on the customer's energy use during the 15-minute period grid peak each month of summer, June through September.
This usage determines what a business will pay in demand charges the next year. So it's important to minimize electricity use during the targeted periods.
It's important to note that a 4CP program is not the same as a demand response program. Demand response pays customers for curtailing load when prices spike on the grid. No payment is associated with 4CP; it is a cost-savings program associated with demand on the grid, not peak electricity pricing.
How to reduce demand charges
In calculating demand charges, utilities look at the single 15-minute period in each of four months -June, July, August and September -when demand was the highest on the grid. No one knows when that will be until it happens. At that point it 's too late for a business to influence the demand charge calculation. Without proper guidance, a business must make its best guess in advance and reduce power at that time.
Fortunately, it can be a highly informed guess if the business seeks assistance from an adviser with deep market insight. That's where Coincident Peak Demand Charge Management programs come into play.
Also called 4CP Alerts, these advisory services help customers gauge when the four peaks are likely to occur so that they can reduce their electricity consumption- perhaps curtailing manufacturing, reducing air conditioning, or drawing electricity from an onsite generator rather than the grid.
"It's very challenging, but there is money to be saved if you can reduce energy usage during any of the peaks — $10,000 to $13,000/MW. If you can curtail consumption during all four peaks, you stand to save roughly $40,000 to $50,000/MW” said Dean McKibben, Senior Product Manager at NRG Energy, the parent company behind Reliant.
Working to identify the peak
Successful 4CP programs, like the one offered by Reliant, employ energy experts with deep understanding of the electricity markets, generation fleets, and usage patterns and trends. Combining this knowledge with weather forecasts helps determine when peaks are likely.
Reliant 4CP experts also incorporate predictions on consumer behavior. Other businesses will be searching for the peak as well, and if many bet at the same time and all reduce their usage at once, they may flatten what would have been the peak.
“There is game theory involved,” McKibben said. “Maybe the peak occurs on what would have been the second highest day because few others curtail that day. Or maybe if the peak looks the same five days in a row, we can assume there will be some fatigue and many will stop curtailing by the fourth day."
Companies will only make so many attempts, as curtailing electricity may have its own costs, perhaps related to delays in production or lost opportunity to run onsite generators at a future date because of environmental restrictions on run-time.
Programs geared to a business' tolerance
Reliant offers two different 4CP programs — one at no charge and the other a premium service. A business should think critically about how capable they are of enacting an energy curtailment plan in order to determine which 4CP program is the better fit.
The first option, which provides market awareness, notifies the business any time a peak is likely to occur. Customers may receive as many as 20 alerts per summer and will choose which they want to respond to.
The premium service, offers two levels of tolerance.
- Selective 4CP provides 12 alerts per year, 45 minutes each. Curtailment is voluntary, and customers may not curtail electricity each time they receive an alert.
- Highly Selective 4CP provides five alerts per year, 30 minutes each, on days that Reliant sees as most certain to reach the peak. If curtailment is expensive for a customer, this is a better option.
Those participating in the paid 4CP program receive a message every day at 7 a.m. CT during the four-month period. The morning message includes the day 's forecast and seven days ahead, along with a history of the company's alerts. If it appears that day will produce a 4CP peak, Reliant also will send an actual alert to Selective customers at 2 p.m. CT, giving them a 45-minute window when the peak is likely. Highly Selective customers receive alerts at 3:30 p.m. C.T, with a shorter 30-minute window.
Experience counts
When it comes to strategies as complex as 4CP, knowledge, and experience count. Reliant and its predecessors have offered some form of 4CP program for over a decade.
It's that experience – not an arbitrary algorithm – that makes all the difference.
“The magic is that we are experts at managing load within ERCOT, and we understand the market. It's what we do well. We have highly trained professionals that keep an eye on the market at all times, watch load growth for the day, benchmark against previous days, and understand the forecasts," McKibben said.
So, while a quick check of the thermometer may reveal that the summer electricity season has, indeed, begun, now is still a great time to look into a 4CP solution. Taking advantage of energy expertise and being in position to adjust to the monthly peaks that still lie ahead provide reason enough to call a Reliant representative about getting started.
To get started, try Reliant's basic 4CP program- it costs little, and the financial gain can be significant.
