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Contracted demand needs change - here is a suggestion!

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Rafael Herzberg's picture
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

  • Member since 2003
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  • May 23, 2020

This item is part of the Utility Customer Care - Spring 2020 SPECIAL ISSUE, click here for more

Companies and institutions pay kW demand and kWh energy. They are always facing changes, on a monthly basis. The most likely ones:

1) The intensity of activities
2) Energy efficiency measures that are incorporated
3) Participation in demand response programs
4) Distributed generation 
5) Changes in energy conversion processes
6) Load shifting to off-peak hours
7) Cost arbitrage with other energy sources

The kWh portion of the bill can be easily managed. Regulated contracts are "pay as you use". Deregulated ones may have a take or pay clause but even so if consumption was below that level, the difference may be sold at the spot market.

The kW portion represents 20% or 30% of the monthly power bill. And it is a very stiff contractual arrangement around the globe. It is almost a fixed cost. Actually it is a comparison between the physical registered demand and the contracted (may be a fixed value in kW or a ratchet). The local utility charges the bigger one. 

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And here is the challenge: usually kW billed by the local utility is therefore higher than the physical demand. The difference is an "idle capacity payment". The reverse situation is when the physical demand is higher than the contracted. Then there is a penalty, all according to the regulations.

The preference - and by far - has been setting the contracted demand with a comfortable "safety margin". It is better to pay for an idle demand then a penalty. But, of course this is an additional cost for the energy user!

This contracted demand system is consistent with the utility's investment to connect the client to the grid. 

Here is the  win-win innovation. For the utility and the clients. A kW capacity exchange in a "zero sum game" arrangement, as an internet based service by which the utility clients would have the possibility to exchange their contracted demand differences in a “zero sum game”. Why is it a win-win?

  1. The local utility keep its kW demand revenue unchanged
  2. By exchanging demand differences an idle demand becomes an active one therefore generating more energy sales out of the same total kW contracted demand for the local utility
  3. Its load factor increases - accordingly infrastructure related investments might be postponed
  4. Utility companies assets are “capital intensive” so this concept makes a substantial economical-financial difference
  5. The clients are able to adjust their contracted demands according to their needs reducing their costs (idle demands, penalties for surpassing the contractual maximum)
  6. This concept is applicable universally to industrial and commercial energy users who are billed by kW demand 

This 6 min video is a high-level overview of the capacity exchange concept including the value for both sides:

  • From the utility's prospective by increasing its load factor
  • The value for the utility's customers when they engage in a demand exchange transaction
  • How to make the capacity exchange happen

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Thank Rafael for the Post!
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