Interruptible Rider, Demand Response, and Power Factor at a Cold Store
A cold-storage warehouse has a billing demand of 4.8 MW, average load 3.2 MW, and annual consumption of 27,600 MWh. The utility offers an optional interruptible rider: a $7/kW-month credit on 1,500 kW of subscribed demand, up to 20 events per year, each up to 6 hours, with 2-hour notice. If the warehouse fails to curtail, the penalty is $25/kW for each event. The warehouse has two 1,000 kW diesel generators, but its air permit limits non-emergency generator operation to 150 hours per year. Refrigeration load is 2.6 MW; product storage can tolerate a 4-hour temperature rise if precooled. The current demand charge is $15/kW-month, and the energy charge is $0.085/kWh. A demand-response aggregator also offers $45/kW-year for 1,000 kW of load reduction capacity, with a 30-minute notice and 10 events per year. Power factor is 0.82, and the utility charges $0.60/kVAR-month for reactive demand above 50% of billing kW. The warehouse currently pays demand charges on its 4.8 MW monthly peak, which occurs on the hottest summer afternoons.
1. Quantify the annual value and cost of the interruptible rider at 1,500 kW. Should the warehouse subscribe? Consider generator run-hour limits, fuel, and curtailment capability.
Read the worked answer
Credit value: 1,500 kW x $7/kW-month x 12 = $126,000/yr.
Generator use: 20 events x 6 h = 120 h/yr, which is under the 150-h permit limit but leaves only 30 h for testing and emergencies. Check whether testing hours already consume that margin. If the permit limits all non-emergency operation, the rider may not fit.
Fuel and maintenance at 1,500 kW:
- Energy generated: 1,500 kW x 120 h = 180,000 kWh.
- Diesel at about 0.075 gal/kWh = 13,500 gal.
- At $3.50/gal = $47,250/yr.
- Maintenance and testing add perhaps $10,000/yr.
- Net value: about $126,000 - $57,250 = $68,750/yr.
The risk is significant. A missed event costs 1,500 kW x $25/kW = $37,500. Three missed events wipe out most of the annual credit. The warehouse must demonstrate firm curtailment. Refrigeration is 2.6 MW, so shedding 1.5 MW for 6 hours is 58% of refrigeration load; that is unlikely without precooling and product-risk acceptance. The generators can carry 1.5 MW only if both units parallel reliably; a single generator failure creates a penalty.
Recommendation: do not subscribe the full 1,500 kW until automated curtailment and generator reliability are proven. Start at 1,000 kW, which matches one generator and reduces penalty exposure, or use load shedding with precooling. Confirm whether the tariff also reduces billing demand; if it does, the economics improve, but do not assume that without the tariff language.
2. Compare the interruptible rider with the aggregator's demand-response offer. Which should the warehouse pursue, and how could the two interact?
Read the worked answer
Aggregator value: 1,000 kW x $45/kW-year = $45,000/yr for 10 events. The 30-minute notice is tighter than the utility's 2-hour notice, and the event duration is not stated in the offer, so the revenue per event is uncertain.
The interruptible rider at 1,000 kW would pay 1,000 x $7 x 12 = $84,000/yr before fuel. At 1,500 kW it pays $126,000/yr, but with higher penalty exposure. The rider is more valuable if the warehouse can curtail firmly. The aggregator is simpler and may rely on load shedding rather than generators, but it pays less.
Do not commit the same kilowatts to both programs. Double-counting the same load is usually prohibited and can create penalty exposure. If the warehouse has separate controllable loads, it could split them: for example, 1,000 kW of refrigeration load shedding to the aggregator and a smaller generator-backed block to the interruptible rider. That requires separate telemetry, control, and verification.
Recommendation: first prove curtailment capability with a test. If the warehouse can reliably shed 1,000 kW within 30 minutes without product risk, the aggregator may be the lower-risk entry. If generator-backed curtailment is reliable and permitted, the interruptible rider at 1,000 kW is worth more. Pursue both only with clearly separated loads and program approval.
3. Evaluate the economics of power-factor correction to 0.95. What size capacitor bank is needed, and what annual savings would it produce?
Read the worked answer
At 4.8 MW real power and 0.82 power factor:
- Reactive power Q = 4.8 x tan(acos 0.82) = 4.8 x 0.698 = 3.35 MVAR.
- The utility charges for reactive demand above 50% of billing kW: allowed = 0.5 x 4.8 = 2.40 MVAR.
- Excess reactive = 3.35 - 2.40 = 0.95 MVAR.
- Annual penalty = 0.95 MVAR x $0.60/kVAR-month x 12 = $6,840/yr.
To reach 0.95 power factor:
- Target Q = 4.8 x tan(acos 0.95) = 4.8 x 0.3287 = 1.58 MVAR.
- Capacitor size = 3.35 - 1.58 = 1.77 MVAR.
- At $40 to $50/kVAR, cost is about $71,000 to $89,000.
- Simple payback on the penalty alone is about 10 to 13 years.
That is not economic on the reactive penalty alone. It becomes attractive only if the utility demand charge is actually on kVA rather than kW, if the site needs transformer or feeder capacity relief, or if there is a separate power-factor incentive. Check the tariff carefully. If demand is billed in kVA, reducing 4.8 MW at 0.82 to 0.95 could cut about 0.8 MVA of billing demand and save roughly 0.8 MVA x $15 x 12 = $144,000/yr, which would justify the project.
Also check harmonics. The site has refrigeration VFDs, so use a detuned or filtered capacitor bank and avoid overcorrection at light load.