What is Demand Charge

The Ottawa Renewable Energy Cooperative is considering installing solar modules on the roofs of two buildings while they stay connected to the public electricity grid. Solar power produced over their own needs would be sent to the public electricity grid for a credit on their electricity bill. When they need more power than they are generating, these buildings would purchase electricity from the grid. In addition to paying for the electricity they purchase, they would be subject to a “demand charge” that applies each month to the hour during which their consumption is at a peak for that month. Any electricity consumed during that peak hour would be charged at a rate about 100 times the rate for other hours. The case addresses three questions: (1) Is it profitable for these organizations to install solar on their roofs? (2) Can profitability be increased by adding a battery? and (3) How sensitive is profitability to uncertainty in future electricity prices? The case shows how the answers to these questions depend on the profile of hourly electricity consumption during the day, which is very different from one building to the other.