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How is Your Electricity Consumption Affecting Your Demand Charges?

What are Demand Charges?

We all know that depending on how we use energy, we are charged differently. For most of us, that is to say small time customers, our energy bill comes in the form of a flat rate based on our total energy used for the billing period. Larger consumers of energy on the other hand, are often charged a higher number based on their demand. These are referred to as demand charges.

How are Demand Charges Calculated?

Utilities will often charge based off of x expected demand as a flat rate or the highest kWh, whichever is higher. Essentially, the energy utility wants to give you the energy you need, and as such, they will bill you at the rate of your highest demand.

In other words, if one day a month, you need 3-4x the energy as the rest of the month combined, you will pay the rate for your highest demanded energy for the entire month. This obviously can result in increased bills due to demand surcharges.

Why Has my Electricity Bill Tripled in the Last Month?

If you’ve ever wondered how your electricity bill could increase so much in such a short period of time, you’re not alone, and it’s more than likely due to your demand charge. Cold storage facilities, for example, have the highest demand and the third highest consumption per cubic foot of any industrial category on the grid. This makes cold storage facilities especially vulnerable to high demand charges.

The National Grid website’s official stance on demand charges is that it’s simply their “overhead”. In other words, demand is just another way of saying “additional operational costs due to increased electricity demand”.  The reality is that regardless of whether you chose to view it as an upkeep cost, or as a penalty, controlling unnecessary demand charges is an essential part of cost management.

You would never want to waste money that you could otherwise save for your bottom line. So taking action to find out whether or not the costs you are incurring are in fact similar to the amount you should theoretically incur, is the first of many steps to cutting costs.

demand charges vs average consumption peak demand electricity bill

The above chart shows average demand compared to the peak demand of the example building’s consumption. The smaller the difference between average and peak demand, the more efficiently the building operates, with respect to demand charges. Said differently, the lower the max demand peak is relative to the average demand, the more efficiently the building utilized its already paid-for “virtual electricity capacity.”

Naya Energy Demand Index (NEDI) Score

Naya Energy seeks to simplify things for commercial energy consumers by calculating their Naya Energy Demand Index (NEDI) score. The NEDI score is a rather simple test of efficiency.  It is essentially an analysis of the effectiveness of your demand charge cost mitigation. The NEDI score is also Naya Energy’s way of seeing whether a consumer might benefit from a service like energy management.

How You Can Reduce Your Electricity Bill

Using your electricity bills, Naya divides the demand charge by the average demand. Higher NEDI score means there is a higher difference between average electricity consumption and peak electricity consumption during a period.

If the number is 1.0, that means that your mitigation methods are highly effective, in which case, Naya can do very little for you. However, if your score is higher than 2.5, then Naya Energy could help you cut demand charges, decrease wastage, and mitigate unnecessary loss and damage to equipment by continuously tracking it.

Bringing The Power Back to Companies

No one wants to give away money unnecessarily, and in order to cut costs and decrease wastage, you have to start by understanding them. The efficiency of your devices, how they interact with each other, when they run, etc. can cause radical changes in your energy demand. This one charge can completely alter your energy bill, causing you to be billed for more energy than you actually use on a regular basis.

Services like Naya Energy put power back in the hands of the customer. They do this in two ways. First, they provide you with understanding; maybe you actually use the amount of energy that you are being billed for, but in the case you do not, Naya’s NEDI score tells you whether you should be taking action to mitigate these demand charges.

Article written by Naya Energy contributor, Nikhil Patel

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