Peak Shaving: What It Is, How It Works, and When It Pays Off

Peak shaving is reducing your facility's electricity demand during its highest-usage intervals so the demand charge on your bill is set by a lower peak. On many commercial and industrial tariffs, the demand charge is set by the single highest 15-minute interval in the billing period. One bad quarter-hour can price the whole month.

Why one interval matters so much

Energy charges pay for the total you consume. Demand charges pay for the maximum you draw at once. Two facilities can use the same total energy in a month and pay very different bills, because one spread its load out and the other stacked everything into a few afternoons. Peak shaving targets that maximum, not the total.

The three ways to shave a peak

• Battery storage. A battery charges during cheap, low-demand hours and discharges during your peak, so the grid sees a lower maximum. This is the most flexible option and the one most project models are built around.

• Flexible backup generation. Where permitted, running onsite generation during peak intervals takes load off the meter. Fuel and maintenance costs decide whether this beats the demand savings.

• Flexible loads. The cheapest peak to shave is the one you simply move. Pre-cooling a cold storage facility before the afternoon, staggering compressor and chiller start times, or shifting a batch process by an hour can cut the peak with no new hardware at all.

The three benefits

• Lower demand charges. The direct saving: a lower billed peak every month the shave holds.

• Avoided demand spikes. Some tariffs carry ratchets, where one high interval prices the following 11 to 12 months. Avoiding a single spike can be worth more than a year of steady shaving.

• Better power quality and capacity headroom. A flatter load profile puts less strain on your service equipment and leaves room to add a line or a shift without a service upgrade.

When it pays off

Peak shaving pays when your peak is sharp, occasional and predictable. Four questions tell you most of what you need to know:

1. How spiky is your load? Pull 12 months of 15-minute interval data. If your monthly peak is far above your typical load, there is something to shave. If your load is flat, there is not.

2. What sets the peak? Find out which equipment was running during your five highest intervals. If it is one or two machines you can reschedule or cover with a battery, the case is strong. If it is everything at once, it is harder.

3. What does your tariff actually charge? The saving is the demand rate times the kilowatts you can reliably remove, so read your own tariff sheet, including any ratchet clause, before believing a vendor's estimate.

4. Can you hold the shave every month? A battery or schedule that covers nine months out of twelve still leaves three months billed at the old peak. Reliability of the shave matters as much as its size.

If those four answers look favorable, the next step is to model the savings from your own interval data rather than an industry average. The same data tells you whether a battery, a schedule change or a contract change is the cheapest way to hold the peak down.

Want to know what your peak is costing you? Book a free energy review with Energy Arbitrage AI and we will read it from your own interval data.