The way companies are billed for energy use is changing in the UK.
This guide explains how businesses can reduce their commercial electricity demand charges as soon as possible, and why.
The two most significant energy costs for a business are the rate paid per unit used and demand charges.
Demand charges are measured in kW and represent the amount of energy consumed at a single point in time.
Energy consumption is measured in kWh and is the total amount of energy used over a given period.
What’s the difference between demand charge and usage?
Imagine you drive from London to Glasgow. You drive for a few minutes at a maximum of 75mph; this top speed represents your demand charge (kW). So 75mph is your peak kW demand.
The 412 miles you cover, at varying speeds, are your overall consumption (kWh). Your energy bill is measured by taking this number of kilowatt hours (kWh) and multiplying it by the predetermined unit rate your business pays for energy.
It’s essential to understand your business energy bill before we look at how to reduce your demand charge.
Understanding your bill
The UK’s demand charge price is based on its ‘Triad’ system. ‘Triads’ are three, half-hour periods in the UK winter when energy demand is at its highest.
The Triad dates must be at least ten days apart. They typically fall on weekdays, between 4 pm-7 pm, November to February and during periods of cold weather. The National Grid often has to fire up expensive coal and gas-powered stations to meet industrial and domestic demand during these windows.
The National Grid uses the Triad method to determine Transmission Use of System charges (TNUoS) for large companies. The more power a company uses on these three Triad dates, the higher the bill will be. The Triad determines a company’s ‘demand charge’.
The Triad dates are announced retrospectively to ensure companies do not deliberately reduce consumption on those days. With big money at stake, many companies do try to guess Triad timings and reduce their consumption – known as Triad Avoidance – to save money on bills.
Ofgem, the UK government regulator for electricity and gas markets, wants to scrap Triad by 2022 and replace it with a fixed charge system. Businesses will fall into one of four fixed payment bands, based on previous energy use and demand charges.
Distribution Use of System (DUoS)
The Distribution Use of System (DUoS) is paid to Distribution Network Operators (DNO) to carry electricity from the high voltage transmission grid to industrial, commercial and domestic users.
There are three price units, colour-coded red, amber and green, which vary depending on the supplier and include bank holidays.
Red is the peak time of highest demand and the most expensive time to draw power down from the grid. Typically, from 16.00 to 19.00, Monday to Friday.
Amber is generally daytime business hours, typically from Monday to Friday from 07.00-16.00 and 19.00-21.00.
Green represents night charges, when demand is lowest, typically from 21.00-24.00 and 00.00-07.00 and from Monday to Friday, and all day Saturday and Sunday.
Other charges on a company bill
There is the Climate Change Levy (CCL) tax; businesses pay less by boosting energy efficiency and reducing their carbon emissions. The bill also includes contributions to the maintenance and running of meters, and everything comes plus VAT.
How to reduce commercial electricity demand charges
Businesses can choose one or many of a multi-pronged approach to reduce demand charges.
Trying to second guess the Triad dates may adversely affect operations; the switch to a fixed payment band means it’s best to reduce overall energy consumption and round down peaks.
Half Hourly meters
The first step to reducing demand charges is to install a Half Hourly (HH) electricity meter. HH meters send an accurate usage reading every 30 minutes, down a phone line and directly to an energy supplier.
Your company may already have a HH meter fitted. Take a look at the S number on a recent bill – it’s in a small box and contains six multi-digit figures. If the top left number reads 00, then a HH meter is fitted.
HH meters can provide an accurate overview of when and how much electricity a business uses and removes the need to take regular readings. Energy suppliers can tailor a price plan based on a business’s exact needs. If they cannot help, shop around with other suppliers.
Ways to reduce demand charges
Optimise the when and how a company uses energy
Half Hourly meter data readings show the times a company uses a lot of electricity. Lower those by:
• Shifting energy-intensive processes to times with cheaper rates if possible
• Spreading energy use across the working day/night.
• Installing battery storage units – charge them during periods of low demand/cost and use their energy during energy peaks.
See if your company can use energy at times that take advantage of the red/amber/green pricing in the Distribution Use of System (DUoS).
Multi-site businesses can switch to a plan that covers all locations. More extensive industrial operations can use multiple meters across one site to help spread energy use better.
This may seem complicated and time-consuming – online energy marketplaces help businesses bridge the knowledge gap.
Look to renewables
Several localised energy solutions can reap long-term dividends on a company’s investment in them.
Battery storage systems charge overnight when energy prices are lower. A company then uses during expensive rate times and avoids paying premium energy rates.
Even more efficient is the installation of solar panels, small wind turbines, hydro energy or biomass systems. Having renewable energy sources on-site lowers Climate Change Levy payments and reduces the amount of energy drawn from the National Grid. On a windy night, a business’s wind turbine could even charge a battery storage system for free.
Make your business energy efficient
Underlying everything is overall business energy use. All reductions in use will help lower bills and lower your peak periods of energy use.
Heating and air conditioning
Heating and air conditioning can double energy bills. Make sure the premises are well insulated and that your company heats or cools only vital areas.
A smart thermostat positioned in an optimum site, e.g. not in a corridor, should be set to a higher temperature when cooling (recommended 24°C/75°F) and lower when heating (recommended 19°C/66°F).
Use fans in summer rather than air conditioning and keep all equipment in tip-top shape for best performance. Some buildings can recycle heat from ovens or other areas to warm office spaces or hot water tanks.
Motor Controls and Variable Frequency Drives (VFD) can help, too. A VFD alters the voltage input of appliances and can run an air conditioning unit at less than 100% of its usual power.
A company spends up to 40% of its electricity bill on lighting, according to the UK government.
It’s good practice to reduce a company’s overall energy footprint, which in turn will help bring down demand charges.
• Switch to energy-efficient LED light bulbs – they use up to 90 per cent less energy than conventional lightbulbs.
• Turn off all lights when they are not in use.
• Swap switches for motion sensors.
• Replace old lighting fixtures with modern fittings that send out more light.
Commercial demand charges may soon change in the UK. It’s best practice to reduce your company’s demand charge and electricity use and source as quickly as possible.