Demand Ratchet and Battery Peak Shaving
A 24/7 food-processing plant has a monthly peak that reached 1,200 kW in July and 700 kW in January. The tariff bills demand at $12/kW-month on the billing demand, which is the greater of actual monthly peak or 80% of the highest peak in the trailing 11 months. Energy is $0.11/kWh from 12:00–18:00 on weekdays and $0.07/kWh otherwise; about 40% of 500,000 monthly kWh falls on-peak. A vendor proposes a 100 kW/400 kWh battery to shave the on-peak peak for four hours on 20 weekdays per month. Installed cost is $450,000, round-trip efficiency 88%, and the plant has 5 summer and 7 winter billing months.
1. Calculate the current annual demand charge and the billed demand in July and January. Show the ratchet effect.
Read the worked answer
Annual peak = 1,200 kW, so the 80% ratchet = 0.80 × 1,200 = 960 kW.
- July: billed demand = max(1,200, 960) = 1,200 kW.
- January: billed demand = max(700, 960) = 960 kW, not 700 kW.
- Annual demand charge = 5 × 1,200 × $12 + 7 × 960 × $12 = $72,000 + $80,640 = $152,640.
The ratchet makes the winter bill depend on summer peak; a January-only reduction would not lower the charge unless the annual peak is reduced and the 11-month lookback rolls forward.
2. Estimate the battery's annual demand and energy savings, and calculate simple payback. State two reasons the estimate may be optimistic.
Read the worked answer
Battery shaves 100 kW for 4 h on 20 weekdays: discharge = 100 × 4 × 20 = 8,000 kWh/month. At 88% round-trip efficiency, charging energy = 8,000 / 0.88 = 9,091 kWh/month.
Demand: new annual peak = 1,100 kW; ratchet = 880 kW. Summer billed = 1,100 kW; winter billed = max(700, 880) = 880 kW. Annual demand charge = 5 × 1,100 × $12 + 7 × 880 × $12 = $66,000 + $73,920 = $139,920. Demand savings = $152,640 - $139,920 = $12,720/year.
Energy: avoided on-peak = 8,000 × $0.11 = $880; charging cost = 9,091 × $0.07 = $636; net = $244/month × 12 = $2,928/year.
Total savings = $15,648/year. Simple payback = $450,000 / $15,648 = 28.8 years, before O&M and degradation. This is not economic.
Optimistic because: (1) the monthly peak may occur when the battery is not available or during a longer peak than 4 h; (2) the ratchet reduction only fully materializes after the old peak rolls out of the 11-month lookback, and battery degradation reduces usable kWh.
3. What would you recommend to the plant, and what data would you request before rejecting the battery?
Read the worked answer
Recommend not proceeding on this tariff and duty cycle. The demand ratchet and 4-hour, 20-day shaving window yield about $15.6k/year against a $450k installed cost; even a 50% cost reduction gives a payback near 14 years. Better first steps are controls, scheduling, and checking whether the peak can be shifted with existing refrigeration or process loads.
Before final rejection, request 15-minute interval data for at least 12 months to confirm when the monthly peaks occur, how long they last, and whether 100 kW of shaving would actually reduce the billed demand. Also request the battery warranty degradation curve, round-trip efficiency at the expected discharge rate, utility interconnection and demand-response rules, and the tariff's exact ratchet reset language. If peaks are shorter or coincident with the battery window and the utility offers a demand-response payment, re-run the economics.