Most commercial electricity bills charge for two different things: the energy you use over the month, in kilowatt-hours, and the highest rate at which you used it, called demand, in kilowatts or kilovolt-amperes. Demand charges are set by your peak, sometimes by a single short period in the month, and power factor affects how that peak is measured. Both can often be reduced without using less energy overall.
Energy vs demand
Think of energy as the distance you drive and demand as your top speed. Two buildings can use the same energy in a month, but the one that runs everything at once for a short time will have a higher peak than one that spreads its load evenly. The utility has to build wires and transformers big enough for that peak, so many commercial rate structures charge for it directly.
Demand is usually measured as the average load over a short interval, commonly 15 minutes, though the interval and method vary by utility. The highest interval in the billing period sets the demand charge. A few minutes of every chiller, rooftop unit and charger starting together after a weekend shutdown can set the charge for the whole month.
Ratchets and minimums
Some tariffs include a ratchet, where the billed demand is the higher of this month's peak or a percentage of the highest peak from an earlier period, sometimes the previous year. Others set a minimum demand based on the contracted service size. Under a ratchet, one bad month can affect bills long afterwards. Read your rate schedule, or ask your utility or retailer to explain it. Rate structures differ a great deal between Alberta, BC, Ontario and other provinces, and between utilities within a province.
What power factor is
In an AC system, some of the current flowing to equipment does useful work and some does not. Motors, transformers and other inductive loads need current to build their magnetic fields. That current flows back and forth without producing work, but it still flows through the wires and transformers.
- Real power (kW) does the work: turning shafts, making heat and light.
- Reactive power (kVAR) supports the magnetic fields.
- Apparent power (kVA) is the combination of the two, and it is what the wires and transformers have to carry.
Power factor is the ratio of real power to apparent power. A power factor of 1.0 means all the current does useful work. A lower power factor means more current is needed for the same useful output.
How power factor shows up on the bill
Utilities handle power factor in different ways. Some bill demand in kVA rather than kW, so a poor power factor directly raises the demand charge. Others bill in kW but apply an adjustment or penalty when power factor falls below a threshold set in the tariff, commonly somewhere around 90 percent. Many small accounts are not affected at all. The bill or rate schedule will say which applies.
Power factor also matters inside the building. Low power factor means more current for the same work, which uses up capacity in transformers, feeders and the service, and increases losses in conductors.
What to look for on your bill
- The rate class or tariff name, which tells you how demand is billed
- Billed demand, and whether it is in kW or kVA
- Metered demand, if it differs from billed demand because of a ratchet or minimum
- Any power factor adjustment, penalty or reported power factor value
- The share of the total bill that comes from demand-related charges
- How billed demand has changed month by month over the past year
What drives the peak and the power factor
| Cause | Effect |
|---|---|
| Many loads starting together, such as after a weekend or a power outage | A short, high demand interval |
| Electric heating on the coldest mornings | A winter peak, often early in the day |
| Cooling on hot afternoons | A summer peak |
| EV charging when drivers arrive | A peak that lines up with other morning loads |
| Lightly loaded induction motors | Low power factor |
| Oversized or idling transformers | Reactive power drawn even at low load |
Ways to reduce demand charges
- Stagger starts. Have the building automation system bring equipment on in sequence instead of all at once.
- Load management. Limit controllable loads, such as chargers or water heating, when the building approaches a set demand. See EV load management.
- Shift flexible loads to hours when the building's other loads are low.
- Use drives and soft starters on large motors so they do not start at full voltage. See motors, starters and VFDs.
- Battery storage can discharge during peaks, although the economics depend heavily on the tariff.
Ways to improve power factor
- Capacitors supply reactive power locally, at individual motors or in automatic banks at the service. They must be sized and placed carefully: too much correction, or capacitors in a building with significant harmonics, can cause resonance and damage equipment. This is an engineering decision, not a parts purchase.
- Right-sized motors run closer to full load, where their power factor is better.
- Drives. Many variable frequency drives present a good displacement power factor to the supply, though they introduce harmonics that need their own attention. See power quality and harmonics.
A typical case
A light industrial building notices that its demand charge is a large share of the bill and does not track how busy the month was. Interval data from the utility shows that the peak lands on the first working morning of each month after a long weekend, when compressors, rooftop units and process equipment all start within minutes of each other. The plant is also billed on kVA, and the power factor is low because several motors are oversized for their loads. The fix comes in two parts: a start-up sequence that spreads equipment starts over a longer period, and a power factor study to size correction properly, taking the plant's drives and harmonics into account. Energy use barely changes, but the billed demand drops.
Get the interval data first. Most utilities can supply 15-minute or hourly data for commercial accounts. It shows exactly when the peaks happen and is the starting point for any demand reduction plan.
How ehZee can help
As part of our service upgrade and load calculation work, we review utility data, measure demand and power factor where needed, and identify what drives the peaks. We then recommend practical changes, from control sequences to power factor correction, and coordinate the work with your electrical contractor.
Common questions
Will reducing demand lower my energy use?
Not necessarily. Demand reduction mostly moves load in time. It lowers the demand part of the bill, while the energy part stays about the same unless you also make efficiency changes.
Is a power factor correction unit worth buying?
Only if your bill is affected by power factor or you need to free up capacity, and only when it is sized by someone who has looked at your loads and harmonics. Units sold as general energy savers for small buildings rarely deliver what is claimed.
Why did my demand charge go up after a power outage?
When power returns, many loads restart at once and can set a new peak. A staggered restart sequence in the building automation system helps prevent this.