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Understanding Your Energy Charges is First Step to Reducing Costs

By John Mosher, Vice President of Energy Solutions, Solect Energy

The concept of continuous improvement is well ingrained in the manufacturing sector. Managers are constantly looking for ways to increase safety and quality and to reduce costs. However, when it comes to one of the biggest operational expenses, energy costs, managers are often disappointed by their lack of ability to seriously affect their expenses.

If you're one of the many manufacturers frustrated by high energy costs, the good news is that there are some concrete steps you can take to make a real dent in your expenses. To get there, you need to understand a few critical pieces of the puzzle, which can then guide you on where and how to take action.

The first concept to understand is that energy charges generally come in two forms; most consumers are familiar with "consumption charges" that are based on the amount of energy used and are billed in kilowatt-hours (kWh). Less well known are "demand charges" that are based on a consumer's peak load and billed in kilowatts (kW). Utilities use demand charges to better manage the extra expense required to meet peak loads on the grid.

Rates can also vary based on geography. In Massachusetts we have different utilities, or municipal light departments, and within those utilities there are different territories and rate structures. Manufacturing companies are designated a specific tariff by each utility which sets the rate you will pay for each kilowatt hour.

Utilities are concerned about customers that have "spiky" energy loads; i.e., energy usage patterns that are typical of manufacturing companies as machines ramp up and down. Utilities don't like this because demand peaks mean they need to buy additional, expensive power from the wholesale market.

To better manage peak load requirements, utilities build-in demand charges. These charges are calculated each month by looking at a customer's highest energy usage for a single continuous 15 minute window. In some utility territories, these charges can be up to 70% of a customer's bill. In fact, according to a study by the National Renewable Energy Laboratory, Massachusetts has some of the highest demand charges in the country.

Now for the good news: because demand charges are based on a single 15 minute peak each month, if you reduce that peak you can dramatically lower your demand charges. One of the easiest ways to reduce your peak demand is to install an energy storage system. Storage systems, usually in the form of a battery, allow consumers to store energy during lower demand periods and then use that stored energy during peak demand periods to lower their associated charges.

Further good news is that commercial energy storage systems have rapidly declined in price. In fact, according to the same NREL study cited above, installing an energy storage system makes economic sense for customers who are paying more than $15/kW in demand charges, and the state average in Massachusetts is $15.50/kW with many customers paying up to nearly $40/kW. The study estimates that up to 80,000 commercial entities in Massachusetts could profitably install an energy storage system.

The final piece of good news is that energy storage systems can become even more profitable when paired with a solar energy system. Manufacturing companies in Massachusetts have been flocking to solar energy because it allows them to reduce overall energy costs and their environmental footprint. Pairing storage with solar (even an existing solar system) can provide tax and other advantages that further enhance the economics.

If you are experiencing higher demand charges and feel you might be a good candidate for an energy storage system you can reach out to a variety of experts who can help you figure out if an energy storage system makes sense. A reputable Energy company should provide a basic assessment free of charge. That assessment should indicate the potential for savings. In depth analysis is often done for a fee or a shared savings model. So if you are frustrated by high energy costs, take the first steps needed to understand your charges, and then take action to lower your bills - you'll be happy you did.

John Mosher is Vice President of Energy Solutions at Solect Energy. He can be reached at

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