Last updated on November 20th, 2019
Peak demand is an important defined term for everyone involved in energy markets. Our peak demand definition will highlight a number of key examples, calculations and benefits.
What is Peak Demand?
In most of the cases, utilities measure the average demand for electricity over 15 minutes. In order to so, a utility company adds up the consumed energy and then divides it by the time interval. This offers the total units of power consumed in kW.
The peak demand is the highest average energy consumed. This is the peak electricity demand, which relates to the energy consumed during the respective month. A large portion of your energy bill represents the peak demand. It depends on the rate structure of a particular utility.
Another peak demand definition suggests that it is the highest usage of electricity in a given time frame. Utilities and generators measure peak demand in kilowatts (kW).
Usually, kilowatt-hour (kWh) is the unit, which the utilities use to measure total consumption.
The given period of time used for calculating the total consumption may sprawl over a monthly or quarterly basis.
Breaking Down the Peak Demand Definition
In order to know what does peak demand means, you have to understand the mechanism of energy production and its consumption. Peak demand relates to the surge in power usage for a specific time frame.
With a view to present the peak demand example, consider the time of the day when most of the users consume the major portion of electricity. When people get up in the morning, they switch on the lights, microwave, coffee maker and similar other appliances.
During the day, most businesses and households utilize an excessive amount of electricity. The time when energy consumption reaches its peak is the peak demand scenario. At that particular time, your utility must provide the required amount of electricity to avoid power breakdown.
Similarly, the power generators must also increase the production of electricity by anticipating the surge in demand. The utilities charge the high cost for electricity provided during the peak demand.
An average electricity bill includes 30-70% of the peak demand charges. The increase in peak demand rates depends on a variety of factors.
These factors include utility provider, region, pricing structures, and tariffs. Therefore, these charges vary in different parts of the state.
The basic reason behind this increase in the cost is to manage the supply by discouraging the consumers to utilize an excessive amount of electricity during this phase.
To lower your energy bills, you need to know how to reduce peak demand consumption.
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Benefits of Peak Demand
By knowing the peak demand, it is possible to bridge the gap between supply and demand. This allows the suppliers or utilities to overcome the issue of power breakdown. Hence, ISOs take into account the factors associated with the peak demand and use it to identify the true capacity.
It helps to meet the demand and makes the performance of a grid more reliable. This results in managing wholesale pricing and making energy markets more competitive.
ISOs utilizes huge networks of power plants, which are capable of generating the required amount of electricity. It helps to improve the efficiency of suppliers and manage the baseload.
With an increase in energy demand, the ISOs bring additional power plants into action. This, in turn, satisfies the demand. Peak demand allows the ISOs to anticipate the energy demand and make it available when needed.
The cost of those power plants, which produce electricity during peak demand is much higher than the ordinary facilities. This is so, as these power generators require additional expenses to maintain them during low demand.
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How Peak Demand Works
Peak demand serves as the major factor, which suggests that how many power generators an ISO or utility must engage in. Peak demand is usually at its highest ranking during summer. This may lead to unexpected blackouts due to higher energy consumption and lower supply.
Peak demand affects the energy bills extensively. This means that even if two consumers utilize the same amount of electricity, the energy bill may not be the same. The reason for this difference is the utilization of electricity during peak demand.
Usually, peak demand instance occurs during the hot summer afternoon. During this time, most of the air conditioning units are running at their full capacity. The energy usage is 5 times higher than the average consumption.
Although the building is consuming the same amount of energy during the peak demand instance, the electricity charges are not the same. This leads to an increase in the energy bill, which is one of the most noticeable peak demand problems.
Utilities increase the cost of providing electricity during peak demand. These charges may differ depending on the type of tariff you are obtaining.
The most common charges, which usually cast the highest impact on the cost of electricity include:
- The energy charge (measured in kWh)
- The demand charge (measured in kW)
If you don’t know the difference between kWh and kW. Read our guide on kW vs kWh. Utilities normally charge for the consumption of energy, as it relates to the amount of fuel utilized by a generator to produce electricity. The reason for charging in kilowatts of demand depends on the fact that it relates to the maximum capacity of a utility.
The generators need to produce the required amount of electricity during the instance of peak demand. The residential consumers enjoy the exemption from demand charge, as the utility companies tend to pass on savings to these consumers.
On the contrary, industrial and commercial utility customers have to pay for the demand charges. This is so, as these consumers exhibit a huge amount of variability when it comes to energy consumption.
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Conclusion on Peak Demand Definition
Peak load is the time when the demand for electricity is at its highest level. Generally, the duration of peak demand instances is shorter. However, in order to meet the demand for such a period, the utilities and power generators have to plan their production in advance.
The peak demand is the difference between the highest demand and base demand. In order to meet such an increase in electricity demand, the utilities engage additional power plants.
The cost of electricity produced by these generators is relatively higher, which also increases the cost of the ultimate consumer’s energy bill.
The examples of peak load power plants include gas plant, solar power plants, wind turbines, and diesel generators.
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