TODAY’S STUDY: What Utility Bill Demand Charges Are And What They Do

Exploring Demand Charge Savings from Residential Solar

Naïm Darghouth, Galen Barbose, Andrew Mills, Ryan Wiser, Pieter Gagnon, Lori Bird, January 2017 (Lawrence Berkeley National Laboratory and National Renewable Energy Laboratory)

Overview

This analysis estimates demand charge savings from residential solar across a range of US locations, PV system characteristics, and demand charge designs

• We use simulated load and PV generation profiles, based on 17 years of weather data for 15 cities, various building characteristics, 9 PV system sizes, and 4 panel orientations

• Demand charge savings are calculated for demand charge designs with and without seasonally varying prices and ratchets, and for various peak period definitions and averaging intervals Upcoming work will expand upon the scope of this study:

• This study focuses on demand charge savings from solar, alone, without storage or load management; upcoming work will examine demand charge savings from solar plus storage

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• This study focuses on residential customers; upcoming work will focus on commercial customers

• This study focuses on implications of demand charges for solar customers; upcoming work will consider how customer bill savings align with utility cost savings from distributed solar

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Key Findings

How effective is solar at reducing residential demand charges?

• The potential demand charge savings depends, first and foremost, on demand charge design – Demand charge savings are generally negligible if based on peak demand at any time of day, as residential loads typically peak in early evening hours. – Solar can yield more significant demand charge savings if based, instead, on peak demand during a designated daytime peak period (e.g., maximum demand during the 12-4 pm window). –Other demand charge design features, such as averaging interval, may also be important. Which PV characteristics are most important to determining the demand charge savings?

• PV system size has a significant impact on how effective a PV system is at reducing a demand charge. Smaller systems are more effective at reducing billing demand than larger ones, on a per-kW basis.

• Panel orientation impacts demand charge savings under limited conditions and only to a limited degree: Southwest- and West-facing panels can be marginally more effective at reducing demand charges, depending on PV system size and peak demand definition.

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How do location and building type impact residential demand charge savings?

• Location significantly impacts potential demand charge savings from solar. Customers in sunnier, warmer regions can generate greater demand charge savings from solar due to greater coincidence between solar generation and loads, and higher loads.

• Building characteristics can have modest impacts on the potential demand charge savings from solar. – Demand charge savings from solar are somewhat smaller for more-recent building vintages, as a result of greater energy efficiency and lower underlying peak demand. – Homes with electric space heating offer marginally greater demand charge savings potential from solar. How variable from month-to-month are the demand charge savings from residential solar?

• Monthly variability in demand charge savings depends mostly on the demand charge design. Demand charge designs based on maximum demand during a designated peak period window (e.g., 12-4 pm) tend to have less variability than when based on maximum demand during any time of day…

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Conclusions

• Solar is not efficient at reducing residential demand charges when billing demand is set by the monthly customer peak

• Some demand charge designs allow solar to reduce billing demand more effectively, such as daytime peak demand charges, when higher demand levels can be displaced by solar generation

• Much of the range in capacity credit levels for a given simulated demand charge design are a result of differences in PV system size and customer’s location

• Each incremental kW of PV installed becomes less effective at reducing demand charges, for most demand charge designs considered

• Southwest- and West-facing panels tend to have higher capacity credits than South-facing panels for demand charge designs with peak windows in the afternoon and small PV-to-load ratios

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• Demand charge savings are higher in sunny locations

• Longer time averaging interval windows lead to higher capacity credit levels

• Demand charge designs with a seasonal element can increase average capacity credits if capacity credit levels are higher in the high season months

• Ratcheting tends to decrease demand charge savings, as ratchets are often set during cloudy months which limits the ability for PV to reduce the demand charge in other months

• There are substantial month-to-month variations in residential demand charge savings

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Policy Implications

• Moving away from fully volumetric electricity rates to demand charges + lower volumetric rates will generally reduce bill savings from residential solar with net metering – Load management or storage, though not considered in this analysis, could mitigate this to some extent – Orienting PV panels to the Southwest or West has limited value in mitigating reduced bill savings – Use of demand charges would likely encourage smaller PV systems

• Though this study does not directly compare demand charge savings to utility cost savings, the results suggest that demand charges may, in some cases, under-compensate solar customers for savings to the electric system – In many cases, demand charge capacity credit is close to zero, which may not realistically reflect solar capacity value across the entirety of the electric system (generation, transmission, and distribution) – Little economic rationale for providing lower demand charge savings per kW to larger systems

• Demand charge savings from solar also tend to be quite volatile from month to month, which can also impact financial viability of new projects

• Some demand charge designs—specifically, those based on peak demand during afternoon peak periods, and with relatively long averaging intervals—retain greater potential bill savings from solar

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