Solar Demand Reductions

When PV retailers start tackling commercial PV, they soon realise that commercial bills are more complex than residential bills…. a LOT more complex. One of the key differences is that there is a separate demand charge.

Rather than paying residential rates of 20-35c/kWh, commercial customers often pay 10-16c/kWh when all of the energy charges are tallied up, plus a separate demand charge. Solar payback is much worse because of this lower electricity price makes solar payback… commonly about 9 year payback.

Solar power can certainly reduce peak demand, and the value of this peak demand reduction can be significant, when it’s incorporated it can even bring a 9 year payback down below 7 years. The challenge is how to calculate the likely peak demand reduction.


 Solar Demand Reduction Illustration

Here’s some tips for approaching peak demand reduction.

  • 100kW of PV will not reduce peak demand by 100kW. If you want a rule of thumb, you could guestimate that a 25kW reduction in peak demand may occur, but this can vary greatly depending upon a number of factors.
  • The reduction in peak demand depends when power consumption occurs (i.e. upon the shape of the consumption profile). If there’s high nighttime consumption then solar won’t reduce peak demand.
  • Solar will reduce peak demand charges by a greater amount if peak demand is calculated monthly and/or if there are separate charges for peak demand during Peak, Shoulder, and Off-Peak periods.
  • An accurate calculation of peak demand reduction requires the customer’s consumption data for 12 months at a half-hourly level.
  • PVsell can calculate the likely peak demand reduction with the click of a button, and allow you to include it in your solar benefits.

Here’s what we suggest you could communicate to your customers:

                “The main value of solar power occurs from reducing your daytime energy consumption. Solar power can reduce peak demand, which may result in reducing your bill further. However, the reduction in peak demand charges is highly uncertain, and can depend upon your tariff structure and whether the sun is shining at the moment of peak demand. We recommend that you view peak demand reduction as ‘icing on the cake’, and the reduction in electricity consumption charges as the ‘cake itself’ – buy solar power if you are happy with the payback excluding Peak Demand Reduction, and consider Peak Demand Reduction as a potential ‘upside’.

If you wish, SunWiz can help you calculate the Solar ROI with and without factoring in peak demand reduction. We can also perform further detailed analysis on how much peak demand benefits are statistically likely to occur – in effect measuring the thickness of icing on the cake. SunWiz can perform Solar ROI calculations for businesses selling PV or for businesses considering purchasing PV.