Energy Procurement | June 27, 2024

Understanding Peak Demand Notifications and How They Can Benefit Your Business

In the world of energy management, peak demand periods represent a critical time when the electricity grid is under the most stress, typically during extreme weather conditions like heat waves or cold snaps. These are the moments when energy consumption skyrockets, and so do the costs. These peak times can significantly impact the monthly electricity bill for commercial and industrial customers. However, there's a silver lining: these costs can be managed effectively with Peak Demand Notifications.

What Are Peak Demand Notifications?

Peak Demand Notifications are alerts sent to clients ahead of anticipated high-demand events. Experts can predict when the demand will surge above normal levels by analyzing grid and weather data. Clients receive a notification on the day of the event, providing them with the opportunity to reduce their energy consumption during these critical periods.

How Can Businesses Curtail Energy Usage?

When a Peak Demand Notification is received, it includes a specific timeframe during which the grid load is expected to peak. Businesses can plan to reduce their electricity usage during this window by:

  • Adjusting thermostat settings
  • Turning off non-essential machinery
  • Unplugging unused electronics
  • Diminishing lighting where possible

These actions not only contribute to a more stable grid but also can lead to significant cost savings for the business.

The Inner Workings

What is a Capacity Tag, and How is it Determined?

A capacity tag is the total kilowatt demand hours used by your facility on the peak hour(s) of the peak day(s). Each consumer is assigned an individual capacity “tag.” Your capacity tag is tied to the number of capacity units that the business will require on the peak demand day(s) of the year.

  • Each utility company is required to calculate and report its peak load contribution to its grid operator on an annual basis. 
  • They will calculate the highest peak load hours that occurred during a predetermined period of time. 
  • The utility will then determine each customer’s specific load during that time, and the customer’s peak load capacity will be determined.

The Financial Benefits of Heeding Peak Demand Notifications

By reducing energy consumption during peak periods, businesses can achieve what's known as 'peak shaving.' This term refers to lowering the highest hours of energy consumption within a month. Since energy bills include charges based on $/kW in addition to the volumetric $/kWh, reducing kW during peak hours can lead to a noticeable reduction in the electric bill.

Moreover, participating in peak demand events can help lower the development and maintenance costs of the transmission grid, which are factored into the overall cost of electricity.

2023 Program Results

The graphic below shows which days in 2023 Mantis Innovation called peak demand events and which days ended up being the peak day(s). Please note that ISO-NE uses the single highest period, while PJM uses the five highest periods.

Calendar showing with days were peak days

Example Savings

The graph below depicts the same usage within two different scenarios. Scenario one shows the client’s normal usage on a peak demand day without any curtailment. Scenario two illustrates the same day, with the curtailed usage shown in blue. As you can see, the peak hour was 5 p.m., so the cap tag for the next year will be based on that moment. Again, the number of peak demand days differs depending on ISO, but for simplicity's sake, we will use just one day. 

Usage graph

So, let's fast-forward a year and look at what kind of difference that one hour could make on your energy bill.

For this example, we need a high-level understanding of how total capacity costs are determined. Below is the basic formula highlighting the three primary inputs for deriving these costs: Capacity Tag, Reserve Margin, and Capacity Auction Rate. The Capacity tag is the part you can control, so we are concentrating on it in this article. If you would like to learn more about the other components, contact us today.

  • A: Capacity Tag is the value derived by the utility corresponding to a customer account’s usage during the peak(s) for a given capacity power year. This is the portion that can be controlled by the client.
  • B: Reserve Margin is the adjustments that scale the actual system peak load to the amount of capacity procured in a given capacity year.
  • C: Capacity Auction Rate is designed to ensure that the system has enough generating resources to meet demand.

Example of a cap tag improvement

Note that for this example, we kept the Reserved Margin and Capacity Auction Rate all the same to illustrate how much just the capacity tag can impact your costs. 

Integrating Peak Demand Notifications with Procurement Strategies

Mantis Innovation's Peak Demand Notifications are designed to complement a variety of procurement strategies. They serve as a standalone solution or an enhancement to existing strategies, aiming to mitigate exposure to high electricity costs due to commodity price fluctuations and secure the lowest cost over time.

Next Steps

Peak Demand Notifications are a valuable tool for any energy consumer looking to manage costs and contribute to grid stability. By taking proactive steps to reduce energy usage during peak times, businesses can enjoy a lower electric bill and the satisfaction of playing a part in a more sustainable energy future. To start receiving your free Peak Demand Notifications and take control of your energy spend, consider signing up with Mantis Innovation today!