Volume 26, number 2, September 2012

Optimizing energy consumption: Watch out for rate baits!

Optimizing energy consumption is a vast concept that is often over-simplified into just optimizing the electricity load factor.

An electricity bill includes a lot of information: maximum power demand, billing demand, consumption in the billing period, power factor, load factor, apparent power, etc. From this data collected from the customer, only consumption in kilowatt hours and power in kilowatts are billed at the Medium Power rate most of the time. The other data in the bill mostly give us an idea of how the energy is consumed.

Too often, we confuse an energy-saving project with one aimed at optimizing the bill through using the load factor (LF). LF is the ratio between a building’s actual consumption and the maximum potential consumption had the actual power measured been used 24 hours per day throughout the billing period (about 30 days). For example, some customers’ electric boilers have a load factor of over 90%. Thus we can simply conclude that the boiler’s actual maximum power demand was in effect 90% of the time throughout the billing period.

Technically, we could say that, when the load factor is high, the power demand of the appliance itself is probably optimized. But it could also indicate an unnecessary use of the electricity loads and that there is wasted energy. In fact, the higher the consumption (in kilowatt hours) during the period, then the closer to 100% of the maximum load is the use recorded during the month.

LF = Consumption in kWh/ maximum power demand (kW) * 24 hr. *
(no. of days in the period)

Figure 1: Load factor (LF) calculation

In the case of a customer with an electric boiler, a very high LF has a downward impact on the average cost of consumption (¢/kWh). So, high use of that appliance would optimize (i.e. lower) the cost of the electricity consumed. But optimizing the cost of energy consumption involves more than that: all the energies available also need to be taken into account when we speak of optimization. Even with a high LF, we still need to know how much it would cost to use a source of energy other than electricity.

Here is a concrete case of a customer who is using an electric boiler in order to have access to Large Power Rate L. The customer also has cooling equipment that is used throughout the year, but more regularly in summer. Contract power is 5,000 kW, which therefore becomes the minimum billing demand, according to the distributor’s terms and conditions. In accessing Rate L, the customer’s consumption will billed at 2.95 ¢/kWh instead of 4.41 ¢/kWh for the first tranche at Rate M (the first tranche is fixed at 210,000 kWh for 30 days) and at 3.19 ¢/kWh for the balance of the energy consumed. That is an appreciable saving on the cost of consumption if the maximum power demand is not taken into account. However, in order to have access to Rate L, the customer has to guarantee contract power of at least 5,000 kW. The customer therefore has to ensure that the electric boiler is used all the time so consumption will not be billed based on the minimum demand, which is the contract power.

However, this means that the electric boiler is not in off-peak mode, but is contributing to the building’s peak power demand, which translates into an average cost per kilowatt hour of a little more than 5¢, even though the boiler’s load factor is high.

At that rate, the customer could obtain the equivalent in natural gas (taking into account their respective efficiencies) of about 44.5¢/m3.

By going through an energy broker, it is currently possible to purchase natural gas at a cost of $2.13/GJ on spot markets, which is equivalent to $8.07¢/m3. Taking into account the other items in billing natural gas, the final cost would be just over 30¢/m3 for a volume slightly higher than 1,000,000 m3/year.

By using a natural gas rather than an electric boiler, the customer would shift from Large Power Rate L to Medium Power Rate M, with no contract power to guarantee. In fact, since April 2011, the minimum billing demand at Rate M is no longer contract power: it now corresponds to 65% of the maximum power demand in winter. Thus, in the case shown above, the minimum demand would be lowered to about 2,200 kW, compared with contract power of 5,000 kW. Since the electric boiler would no longer be used in the winter, it would not be part of the calculation of minimum demand, and so the customer would have achieved savings of about $6,000 per year by completely shutting down the electric boiler.

In the end, the lesson to be learned when we talk about optimizing the load factor is that it does not necessarily guarantee that all energies are being optimized!

Daniel Gendron, Eng. CEM©, PA Leed©
Datech Group