Why is Peak Demand a Concern for Utilities?

By Jonathan Susser | March 13, 2018

The inputs and demands on the power grid are changing. Across the country, the rise of alternative energy sources, such as solar and wind, and energy efficient components is impacting how people receive and use electricity and how electric utilities do business. In particular, these developments are affecting how utilities provide safe, reliable and affordable electric service because of what’s known as peak demand.

Peak demand is the time when consumer demand for electricity is at its highest; this can be by day, season or year. Peak periods tend to be in the morning during winter months (when lots of heating is occurring) and in the afternoon during summer months (lots of cooling). When looking at an entire calendar year in North Carolina, peak demand occurs in the winter. Although general electricity demand has leveled off over time with improvements in technology and energy efficiency, peak demand continues to have a large influence on electricity prices.

Peak demand is of critical concern for electric utilities for a number of reasons, stemming from an interaction between user demand (when and how consumers are using electricity) and power generation (with solar and wind power increases, especially). In general, if electricity demand exceeds a utility’s power generation capacity, the utility has to purchase power from other utilities on the open market, which is expensive. Alternatively, utilities can propose building new generating plants, but this approach can increase electricity rates and prove costly for customers. To avoid these situations, utilities look for ways to lower demand for electricity during peak periods.

At the same time, changes in power generation are adding another wrinkle. In the past, utilities have been able to generally predict the pattern of electricity demand, with spikes in the morning and early evening surrounded by gradual increases and decreases; there was rarely a large jump or dip in demand. With increasing amounts of solar and wind energy, however, this pattern is becoming less reliable, particularly when considering when these energy sources are most readily available and how quickly they go online or offline.

Consider a summer day. Throughout the morning and afternoon, solar power can provide a significant amount of energy. But as the sun goes down and solar power becomes less effective, people are arriving back from work and consuming more electricity from the power grid. Said differently, people go from using relatively little power from the grid (than they historically have used) to lots of it in a short period of time. To meet this surge in demand, utilities need to quickly ramp up their power generation, which is expensive and can be difficult to navigate. A similar situation can occur with wind power, particularly in the wintertime as availability tends to pick up at night and may start to die down as peak demand occurs in the morning. Although this scenario is not a concern everywhere in the U.S., as more renewable energy sources come online, it will continue to play a large role in how utilities operate.

Addressing Concerns

With these ideas in mind, utilities across the country are making peak demand reduction a priority by focusing on the user side of the equation. Implementing successful peak-reducing programs requires the convergence of several key measures. The programs must, obviously, achieve savings coincident with peak. One way to do this is to focus on measures and technologies that are particularly used during peak times. On top of addressing demand reduction, potential programs should aim to be relatively inexpensive to run and promote customer satisfaction to improve participation and buy-in.

We have partnered with utilities to implement a variety of programs of this sort. On the residential side, for example, we have been examining the use of highly efficient heat pumps to lower the winter peak in a winter peaking location. In another endeavor, we studied the effectiveness of smart thermostats, which allow users to have more control and save money while utilities can engage demand-response capabilities.

Another strategy being broadly implemented, particularly in the Southwest U.S., is the use of dynamic and time-of-use (TOU) electric rates. Rather than offering a flat rate for electricity no matter when it is used, these rate options charge more for electricity used during peak periods and less for electricity used during off-peak periods. The goal of these rate structures is to incentivize consumers to shift their electricity use to less demanding times of day, thereby lowering peak and reducing customer bills.

Electric vehicles are one technology that is being closely studied with regard to peak use. Based on some of our previous research conducted in North Carolina, left unmanaged, electric vehicle charging can add even more demand to peak periods (if, for example, people come home from work and immediately plug in their cars to charge). Therefore, certain utilities, like Randolph Electric Membership Corporation, Piedmont Electric Membership Corporation and Wake Electric Membership Corporation, have begun to offer electric vehicle-specific TOU rates, hoping to encourage drivers to charge when demand is low, such as overnight.

Reducing peak demand or shifting use to times of low demand yields less sudden changes in electricity consumption and puts less strain on utilities to meet their needs. Therefore, managing peak will continue to be a critical issue as utilities work to provide safe, affordable and reliable electric service.