Home Energy Management Curbing Demand Charges: The ‘Other’ Part of Your Electric Bill

Curbing Demand Charges: The ‘Other’ Part of Your Electric Bill


NATIONAL REPORT—It is no secret that energy management can be a major challenge for hotels. By all means, energy is important for any building these days. In an industry focused on providing superior customer experiences and maintaining immaculate facilities, high electricity bills can feel uncontrollable—just another cost of doing business. Hotel facility managers are trained to think about electricity bills in terms of kilowatt-hours (kWh), which equates to how much energy the building consumes each month. However, there is another component of the bill measured in kilowatts (kW), or the maximum peak rate at which the facility used electricity during that month. These fees are known as demand charges, and if your building’s power consumption fluctuates as dramatically as the average hotel, they could make up a significant portion of the electricity bill.

Here are a few things all facility managers should know about demand charges, and how to keep them at bay.

1) Demand charges can make up a large portion of your electricity bill. It might come as a surprise that demand charges typically account for at least 30 percent of a commercial electricity bill, and often as much as 50 percent.

2) Measurements are taken as 15-minute averages. Demand charges allow utilities to bill more for higher-than-average, short-term usage, with cost determined by averaging use rates across 15-minute increments. Think about the average morning in your facility: guests are getting ready for the day ahead, which means they’re plugging in hair dryers, clothing irons and coffee makers as they’re watching the morning news. During a period like this, your rate of consumption may spike.

3) One mistake can impact an entire month. In addition to daily peak patterns, facility managers have to be diligent to avoid large, simultaneous electricity loads, like having a water chiller turned on while also running a pool pump. One 15-minute misstep like this can elevate the hotel’s demand charges for the whole month, which can add up to a costly expense.

4) Demand charges are hard to predict—and they’re rising. Determining how much demand charges are adding to your electric bill can be challenging, and predicting future charges is even more difficult. This is especially true given that many utilities across the country are increasing commercial demand charges in an effort to recover the costs of maintaining their aging infrastructure, even while overall energy rates are falling. For example, demand charge rates for three of California’s largest utilities have risen 30 percent in the past three years alone, and are 75 percent higher when compared to 10 years ago.

5) Charges vary significantly, by season and by state. Utilities have to build enough power plant capacity to supply peak energy needs, which is extremely expensive to develop and maintain. For this reason, demand charge rates are often higher during summer months, when air-conditioning usage is high. This is especially damaging to hotels, since summer is high season for travelers.

6) It’s important to know when the meter is read each month. Your billing month doesn’t necessarily coincide with the calendar month. It’s important to know the difference and, when possible, schedule projects requiring high-load equipment during a billing month when the facility has already incurred a high demand charge.

7) Energy efficiency and clean power don’t address demand charges. From LED light bulbs to new washing machines, energy efficiency measures can improve your hotel’s overall sustainability and help save money on base-load energy usage. However, these initiatives do not generally have a significant impact on demand charges, as they do not address peak use issues. Adopting solar energy is another example—great for environmental stewardship, but doesn’t eliminate peak loads due to its intermitIt tent nature. On overcast days when solar yields are lower, the hotel is likely to incur higher demand charges.

After all this, it might sound like the solution to avoiding demand charges is simply “turn things off,” but that’s not exactly a realistic option in the hotel industry. So, how can facility managers reduce energy costs without sacrificing customer comfort or the day-to-day flow of business operations?

Avoiding Short-Term Energy Spikes

More and more, hotels are looking to advanced energy storage and data analytics systems to alleviate demand charges. These systems combine predictive software and safe, reliable batteries to proactively store and discharge energy for optimal economic impact. The system can access energy reserves during times of peak electricity demand to avoid short-term usage spikes and the corresponding demand charges—all with no human intervention or impact to operations. Intelligent storage systems can also provide personalized energy recommendations based on a hotel’s specific electricity needs and usage patterns.

Ultimately, smart technology solutions could be the answer to hotels’ energy challenges, enabling facility managers and staff to spend less time and resources fretting about electricity bills, and more time focusing on enhancing their businesses.

John Carrington is the CEO and Director of Stem, Inc. Stem creates innovative solutions that reshape the way energy is distributed and consumed. The technology company enables businesses to control their electricity spend and helps the electrical grid be more efficient.