Jeffrey Wishart, Senior Principal Engineer at ECOtality since 2009, conducts research and development on products and services in the areas of energy, the environment, and advanced transportation. In addition to his supervisory position at ECOtality, Dr Wishart worked for several years at a utility company in Queensland, Australia, conducting research into emerging energy technologies.

What are demand charges?

One of the barriers that EVs have faced is convincing business owners and government decision-makers to host public charging stations. The difficulty is especially acute for DC Fast Chargers (DCFCs), not just because of installation and energy costs and permitting headaches, but also due to high power costs that show up as “demand charges” on the host’s utility bill.

A demand charge is a fee imposed by a utility, typically for commercial properties, for the peak power used during a billing cycle, regardless of the amount of energy drawn at this power rate. 

In contrast to the total energy usage that is the more familiar utility charge, a demand charge is triggered by a one-time occurrence of an elevated power level (usually an average over a 15-minute interval) and is not a cumulative charge. Demand charge rates are specified in $/kW, and are usually incurred when the peak power used during a billing cycle rises above a specified threshold, but they are sometimes incurred for any power level above zero. Certain utilities even levy a yearly peak power demand charge. 

Simply put, demand charges are the method by which utilities penalize high power consumption during peak demand periods.

Demand charges can add significantly to the utility bill for an EVSE host, and can make EVSE hosting cost-prohibitive. As a result, hosts may attempt to recoup the demand charges by increasing fees for vehicle charging. This could very well deter commercial EVSE usage and negatively affect the nascent EV industry. 

Demand charges have less of an impact on AC Level 2 EVSE deployment, due to a relatively low output power that is often below the demand charge threshold. However, a cluster of AC Level 2 units can incur demand charges with their aggregate power demand, if on the same service. Conversely, the higher power levels of a single DCFC incur demand charges much more frequently.

Real-world demand charge examples

While deploying DCFCs around the country for the The EV Project, ECOtality worked with many different utilities and encountered a variety of different demand charge rates. But there are also utilities that do not impose demand charges for DCFC installations, including Tucson Electric Power, Alameda Municipal Power, Silicon Valley Power, Pacific Gas and Electric, City of Palo Alto Utilities, and all of the utilities in the state of Tennessee.

Among the many utilities that do have demand charges on the books, the three with the highest rates (that we encountered) are all in California. Looking at the worst-case scenario, for example on a summer day during the peak period, the following demand charges would be incurred:

• San Diego Gas and Electric: up to $30.68 per kW
• Southern California Edison: up to $29.20 per kW
• Burbank Water and Power: up to $21.21 per kW

Using those rates, an analysis of the demand charges associated with a particular DCFC duty cycle can be developed¹. Assuming the DCFC to be the only load on the meter, and using the published base, energy, and demand charge rates for the three high demand charge utilities above, the monthly (30.4 days) bill for a DCFC installation with the assumed duty cycle could reach:

• San Diego Gas and Electric: $58.22 (base) + $230.53 (energy) + $1,840.80 (demand), for a total of $2,149.55. The demand charge would be 86% of the total monthly bill.
• Southern California Edison: $134.17 (base) + $211.13 (energy) + $1,752.00 (demand), for a total of $2,097.30. The demand charge would be 84% of the total monthly bill.
• Burbank Water and Power: $16.27 (base) + $274.11 (energy) + $1,272.60 (demand), for a total of $1,562.98. The demand charge would be 81% of the total monthly bill.

As you can see from these examples, devising solutions to the demand charge problem is imperative to the growth of the industry. 

How to avoid demand charges?

There are a variety of different methods for avoiding or reducing demand charges. However, it is unlikely that any one will be optimal for each specific location, so it’s important to evaluate all options on a case-by-case basis.

The first step is to determine the following information for a given DCFC installation:

• What is the expected peak demand for the site owner in a billing period? Over how much of the 15-minute interval does the peak demand span?
• What is the average site demand?
• What is the utility rate structure? Is there a yearly maximum average power demand charge in addition to the billing cycle maximum average power demand charge?
• What is the tolerance for an incurred demand charge, i.e., how much is the EVSE host willing to pay in demand charges?

Once these parameters are specified, the next step is to choose from the possible methods for reducing the demand charge. ECOtality came up with six ways (although there are likely several other possibilities): 

1. Never allow the overall site power demand to exceed a specified value.
2. Attempt to ensure that the average power over the interval is less than or equal to a specified value.
3. Attempt to recoup the demand charge cost through structured pricing for EVSE charging.
4. Add an energy storage system that buffers the EVSE unit from high power demands during charging.
5. Aggregate demand among multiple EVSE installations into one demand charge calculation, taking advantage of the diversity that may exist in individual unit usage.
6. Provide demand response capability to the utility to either offset or circumvent demand charges.

[A seventh “solution” would be to work with utilities to create a tariff that exempts EVSE usage from demand charges. Since this is within the purview of the utility, we’ll focus only on the EVSE side for demand charge avoidance and reduction.]

The six possibilities vary considerably in cost and effort involved, as well as in likely effectiveness at reducing the demand charge without simultaneously reducing the utility of the DCFC.

1. Never allow the overall site power demand to exceed a specified value

This method is the most conservative and least expensive of the six. It basically involves de-rating the DCFC so that the EVSE host can be assured that the unit will not exceed the value that is the difference between the demand charge tolerance and the expected peak demand of the host. Historical data can reveal the expected peak site demand. With the peak site demand known, the maximum DCFC power allowable to obtain the tolerated demand charge can be calculated, and the DCFC can then be electrically limited at the time of installation or on an individual charge basis. The drawback is that a de-rated DCFC means a slower charge, and the amount of required de-rating could be overestimated. Thus, EV owners may not take kindly to this reduced charge rate and the increased time it takes to charge.

2. Attempt to ensure that the average power over the interval is less than or equal to a specified value

This tactic depends on having accurate historical data and/or a very predictable site demand. If the DCFC is on its own service, the complexity is reduced considerably. This method requires de-rating of the DCFC just as in Method 1; however, the de-rating will be just enough to ensure that the average power during the 15-minute interval will not incur a demand charge exceeding the tolerance threshold. Although the de-rating is less severe, the charge will still be slower, and there is a greater chance of exceeding the tolerance threshold if the DCFC is on a shared service.

3. Attempt to recoup the demand charge cost through structured pricing for EVSE charging

This method is conceptually simple, and there is no de-rating of the DCFC unit. The EVSE host sets either a single rate or tiered rate structure (for different charge power rates) in an attempt to amortize the demand charge cost over all of the vehicles that are charged during a billing period. The host may actually make a larger profit with this method, but could also experience a larger deficit if the predicted usage is inaccurate. The host might also see a backlash if customers do not like having different charging rates available, or if the usage is underestimated and the rates are higher than needed to cover the demand charge incurred. 

4. Add an energy storage system that buffers the EVSE unit from high power demands during charging

Pairing the DCFC with stationary energy storage would buffer the power demand of the DCFC, and reduce or eliminate the need to exceed the demand charge threshold. The stationary battery pack is replenished by grid electricity, which can be timed to take advantage of off-peak rates and be at sufficiently low power rates to avoid (or at least minimize) demand charges. This configuration is also useful for future advancements in grid-DCFC connections like vehicle-to-grid (V2G) where the flow of electricity is bidirectional. Naturally, the drawback to this strategy is the additional expense of the energy storage, although a return on investment (ROI) can be developed via the savings on demand charges.

5. Aggregate demand among multiple EVSE installations into one demand charge calculation, taking advantage of the diversity that may exist in individual unit usage

This involves putting multiple DCFCs on one service or developing an arrangement with the utility to treat multiple DCFC installations as a single load, and then relying on demand diversity so that the aggregate demand charge is less than the total of individual demand charges. For this to work, not all DCFCs can be at the peak load at the same time, which may imply that the utilization factor of the DCFCs cannot be very high. Demand charges will be incurred, so this method is only a way to decrease demand charges, not avoid them.

6. Provide demand response capability to the utility to either offset or circumvent demand charges

This method incorporates some utility policies that are already in place and applies them to DCFCs. Utilities are very eager to work with customers to reduce peak loads not only to avoid grid failures but also to postpone generation, transmission, and distribution capacity increases, which require heavy capital expenditures. To accomplish these goals, utilities offer incentives, such as time-of-use (TOU) rates that push customers to use electricity more during off-peak times, and demand response programs whereby a customer can be compensated for reducing their electricity demand when required by the utility. EVSE hosts could either sign up for demand response programs directly with the utility, or, more likely, sign with an aggregator, a company that signs up a number of electrical load owners, and then takes a cut of the utility’s incentive while eliminating the risk of not meeting the utility’s requirements for demand response in situations where there is no vehicle charging. Demand charges will still be incurred by the EVSE host, but the payments from the utility or aggregator should offset the costs and perhaps even result in a net benefit.

Case-by-case

Analyzing the methods presented here leads to several conclusions. First, it’s important that reliable historical energy use data is available for any prospective DCFC site. Each site must be vetted thoroughly for the appropriateness of DCFC deployment, including the obvious permitting and installation costs and complexities, but also from the standpoint of site demand data reliability and uniformity. If the data are unavailable or the demand varies widely, the site may not be suitable for a DCFC unit. This decision must be made on a case-by-case basis, and will largely depend on the tolerance of the DCFC host for large and varying demand charges. 

Some of the charge reduction methods will require an energy management system or remote EVSE monitoring and demand control capabilities. These features are more easily included in “smart” EVSE units rather than in “dumb” EVSE units. While a dumb charger may cost less upfront, as with most things, cheaper is not always better in the long term.

These various solutions offer different degrees of certainty. An EVSE host needs to balance the desire to reduce demand charges on one hand with maintaining the level of service his customers/users expect from the EVSE charging on the other.

This article originally appeared in Charged Issue 10 – OCT 2013