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How the Relationship between the kW and kWh is Changing Utility Operation

The energy industry is in the midst of a grand transition that may de-emphasize the American public’s best understood electricity attribute of energy efficiency (EE), which focuses on reducing the amount of kilowatt hours (kWh) consumed.

Far more important to utility operations and grid stability/security is demand management focusing on the kilowatt (kW) in terms of both capacity and the instantaneous electricity demand. Essentially, there are two different electricity commodities with energy (kWh) and capacity (kW), but too many electricity consumers and energy sector professionals fail to realize the difference or the effect on utility operations.

To use the common analogy, the kW is the speed which you drive, while the kWh is the distance that you cover in an hour. Utility customers have traditionally been billed for the distance that they drive (kWh), but commercial customers increasingly have a separate demand charge on their bill based on their maximum kW during a month or year. As we transition to a new generation paradigm, electricity consumers must increasingly be aware of their speed (kW).

New distributed generation and the associated power quality challenges are forcing utilities and regulators to address demand management. Traditionally, a utility would spend capital in order to ensure infrastructure capacity to meet the maximum simultaneous demand from customers anywhere on the grid. However, both the cost and time needed to continue this approach are increasing. Therefore, working with customers on demand side management to reduce overall peak demand and either avoid or defer infrastructure investment will benefit both grid resiliency and the electricity rate pressures that ultimately absorb the cost of infrastructure investment.

The Trend

The first strain on the utility grid leading to an increased emphasis on the kW relates to the graph below showing the most recent US data available through the Energy Information Administration (EIA).  In part due to the success of EE programs in the U.S., Energy (kWh) sales have remained relatively steady over the past 7-10 years.

However, during the same timeframe, the summer generation capacity has steadily risen. The increasing generation capacity is a prime indicator of growing peak demand. As customers demand more and more energy at similar points throughout the day, utilities must increase their capacity to meet this spike in demand and provide reliable power service. This spike is a demand (kW) issue and not an energy consumption (kWh) issue.

kW and kWh

What is interesting about the above graph is that it appears our collective energy efficiency efforts have proven successful in curbing our overall energy consumption. As a nation, we have maintained relatively steady annual energy (kWh) usage (It has actually decreased since 2007). However, those efforts failed to educate the public on when it is most important to conserve energy.

Growth rates in peak summer demand are not the only reason why electricity demand (kW) is soon to be at the forefront of our energy consciousness. The increase in distributed, renewable, non-dispatchable generation increases stress on the grid as dispatchers balance generation with demand. As renewables continue to come online, the generation-demand dance will become increasingly important to grid operations both locally at the neighborhood level and across the system.

The seeming misalignment of renewables in balancing demand has been a primary argument against their installation. “Is wind energy really that valuable if it maximizes production when everyone is asleep?” “Does distributed solar truly add it’s nameplate value if it produces more than its owner consumes?” These basic questions have led to the excitement surrounding new energy technologies and solutions.


How the Sector is Reacting

In response to the trends outlined above, the private sector sees opportunity. Grid-Scale energy storage is a market that has new and meaningful life. Similarly, there is increasing excitement surrounding demand response technologies and there are dozens of early stage software companies focused on enabling the consumer with their consumption data as evidenced by the Green Button initiative.

New hardware technologies are hitting the market with the promise to manage demand (kW). For example, customer owned energy storage is a technique that uses batteries as a buffer to reduce demand (and applicable demand charges) and smooth out the customer’s load profile.

With this approach, batteries are placed between the customer’s meter and the consumer’s load and kick in when needed to keep demand below a certain threshold.  Tesla’s much publicized Powerwall, replete with its 7 kWh battery, is likely best suited to some form of this technical application. Other whole building solutions, such as building energy management systems (BEMS), can be installed that assist in managing both electricity consumption and demand.

These technical advances are not limited to customer-sited solutions. There are also numerous technologies focused on grid and distribution operations.  While the installation of solid-state transformers, automated feeder switches, or power quality monitors may be germane to most individuals, their installation (and cost) could increase utility operation costs and affect consumer bills.

What the Individual Needs to Know

Most literature outlining strategies to tackle our “energy problems” begins with energy efficiency.  Indeed, efforts over the past decade have proven successful in educating us on the merits of saving the world, one light switch at a time.  We know what it means to conserve energy but we need a new class on when it is most important to conserve. This education effort is necessitated by our growing peak demand relative to steady annual energy consumption (kWh).

The bulk of the benefits from technical innovations can be achieved thorough application of longstanding energy efficiency techniques applied more broadly to demand management. While the technical innovations outlined above can assist customers in limiting demand, behavior change is an important first step.  Demand limiting strategies primarily adapt cost effective energy efficiency measures first and then apply demand management techniques to defer or balance the contributors to peak demand over a longer time period.

What do consumers really need to know regarding energy efficiency (kWh) and demand management (kW)? First, consumers should to continue to adopt the energy efficient equipment that has been so successful in almost eliminating electricity consumption growth over the past decade. Second, start to think about when electricity is being consumed. By reducing peak demand and the infrastructure costs to add the capacity to meet load growth, utility grid modernization efforts can focus on enhancing delivery capabilities and customer services such as distributed energy resources, resiliency and grid management rather than just capacity.

2 thoughts on “How the Relationship between the kW and kWh is Changing Utility Operation

  1. Demand charges are, at base, a proportional finance charge allowing utilities to pass on capital investment costs to customers. They are notoriously hard to understand because utilities make them so. Further, unlike energy consumption, utility rules make it very hard to reduce demand charges without severe disruption to operations, and even if you do, other utility rules make it impossible to escape their charges. For example, TVA’s minimum demand charge rule is that minimum demand is 30% of the highest demand charge for the past 12 months. So, the customer is liable for the minimum demand charge, even if they use no electricity. Solar is an excellent and easy way to reduce consumption. Only batteries, Combined Heat and Power (CHP) and changed operations can address demand.

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