Peak Shaving

Deregulation has resulted in fundamental and significant changes in utility rate design, separating energy costs from delivery costs. A few years ago most users paid a flat per-kWh rate for electric power. Now electric rates are often broken into many portions and time segments - summer and winter rates, day and night rates, and so on. In delivering your power, most utilities now pass on the energy cost to you with regular adjustments - annual, seasonal or monthly changes are now common. In some cases utilities charge large users the hour-by-hour market cost of electricity, exposing those customers to tremendous risk as demand rises and falls.

The availability of market pricing for energy provides a new opportunity to use on-site power generation for cost savings. Customers buying power at the hour-by-hour or "spot" rate pay a lower price, most of the time, than regularly-adjusted flat rates. For a few hours each month, when electric demand is highest, the spot price for electricity rises well above the flat rates. At these times it becomes more economical to generate power on site than to buy the higher-priced power from the "spot" market.

Peak shaving can reduce costs for natural gas as well as for electricity. Companies which have higher natural gas use in the winter than in the summer typically pay a higher cost for transportation and delivery of their gas, because a larger portion of pipeline capacity is reserved that is not used all year long. Often a utility applies a load balancing charge of up to $3 per MMBTU for gas load that is higher in winter than summer. If summer gas use is increased to fuel a peak shaving generator, then the balancing charge can be reduced. In some cases, power generated in summertime to reduce the peak demand will reduce the electrical utility's bills for the remaining months.

Peak shaving generators can also be used in conjunction with demand reduction programs like those run by PJM Interconnect and many utilities in New York and New England. These programs provide an economic incentive to reduce grid load - in this case, by running an on-site generator - when grid capacity is becoming strained, or when prices rise quickly. Often the economic impact of these programs can be very signifcant.

Marson Energy has prepared a white paper outlining how peak shaving can work. The examples in this paper apply to the current situation in New Jersey, but are applicable to a variety of markets where hourly pricing for power is becoming available. For more information on how peak shaving with on-site power can work for you, call us at 570 663-9292 or contact us by email.