Join us for Part 3 of our BTM series exploring a significant–& often misunderstood–cost driver for commercial & industrial (C&I) customers: demand charges. We’ll break down what demand charges are, why they matter, & how BTM energy storage solutions are emerging as key strategies for reducing these costs while improving energy efficiency & resilience in the process.
Contact: Betsy Barry
Communication Manager
706.206.7271
betsy.barry@acculonenergy.com
Demand charges are a specific component found on the electricity bills of certain customers, particularly commercial and industrial (C&I) customers, as the U.S. electricity market for retailers is often segmented into end-users, i.e., C&I customers vs. residential customers. Unlike the standard charge for the total amount of energy consumed (measured in kilowatt-hours or kWh), demand charges are based on the highest rate of electricity used (measured in kilowatts or kW) during a defined period, typically a 15-minute interval, within the entire billing cycle. Utilities implement demand charges to recover the costs associated with building and maintaining the infrastructure required to meet the highest electricity demand levels. By charging for this peak power usage, utilities aim to incentivize customers to manage their electricity consumption and reduce high spikes in demand, which can strain the grid, causing wider grid instability. Demand charge rates vary across the U.S. but are often poorly understood by customers, while at the same time representing anywhere from 30%-70% of a C&I customer’s electric bill.
In the U.S. alone, 5 million C&I customers pay over $15/kW. A survey done by the National Renewable Energy Laboratory (NREL) shows the highest number of C&I customers by state, with over a $15/kW demand charge. See Figure 1 below.¹
As mentioned above, C&I customers vary widely with respect to energy and power needs. To illustrate the potential costs of demand charges alone, let’s consider a large distribution center that experiences electricity peaks related to forklift charging between shifts. In this scenario, a daily 500 kW peak for 30 minutes occurs. For jurisdictions where the demand charge is $15/kW, this would result in an additional $7500 in monthly electricity expenses. In some jurisdictions, such as in New York, the demand charges can reach as high as $51.25/kW, which would equate to a yearly cost of over $300,000 on demand charge expenses.
As demand charges continue to account for a significant portion of commercial & industrial (C&I) electricity bills, BTM energy storage offers a strategic path to cost savings—if properly optimized.
For customers primarily motivated to reduce their demand charge exposure, candidate solutions are ones that have high power capability, fast response time, while limiting overall cost. Based on these requirements, generators and fuel cells are poor options. Lead-acid batteries are also not a great candidate solution due to their limited cycle lives. Flow batteries have better economics for longer duration use cases and therefore aren’t an optimal option either. By process of elimination, lithium-ion and sodium-ion batteries are left.
Focusing on mitigating demand charges alone, it is possible to calculate ROI tipping points for battery storage as a candidate solution. The below graph shows the required $/kW battery pack price needed to have a positive ROI across varying demand charge rates and is compared against $/kW cell prices for varying chemistries.
Based on quoted cell pricing, both NFPP and layered metal oxide NA+ show positive ROI when the difference between peak prices is greater than $3/kW. LFP also shows positive economic benefits, but not as great an ROI vs. the sodium-ion options. Optimizing demand charge mitigation requires robust knowledge of both historic and forecasted loads. It is worth pointing out that a majority of the BTM battery energy storage systems to date have been optimized around energy density. This has led to most systems being designed with prismatic LFP or NMC lithium-ion cells with max discharge rates of 0.5C. The data above suggests that for demand charge mitigation, high-power cylindrical cells can create more value.
In summary, as demand charges continue to account for a significant portion of C&I electricity bills, BTM energy storage offers a strategic path to cost savings—if properly optimized. While traditional systems have focused on energy density, the analysis shows that for demand charge mitigation, power capability and peak shaving potential are what truly drive ROI. Technologies like high-power cylindrical sodium-ion cells may offer greater value than conventional LFP setups, especially when peak price differentials exceed $3/kW. As the market evolves, a shift in design priorities—toward systems tailored for peak demand management—could unlock deeper savings and smarter grid participation. Stay tuned for our next installment that focuses on another important aspect of BTM energy: peak shaving.
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