Two-Part Electricity Pricing System

Take the industrial electricity price in China as an example, china implements a two-part electricity pricing system for large industrial users with a transformer capacity of 315 kVA and above. This system includes a basic price (capacity or demand charge) and a kilowatt-hour price. The electricity demand charge falls under the basic price category.

The basic price reflects the capacity cost within an enterprise’s cost structure – in other words, the fixed cost portion. Users can calculate the basic electricity fee in three ways: based on transformer capacity, contracted maximum demand, or actual maximum demand. Importantly, the electricity demand charge each month depends only on the user’s capacity or maximum demand, not on actual electricity consumption.

The kilowatt-hour price, meanwhile, reflects the electricity consumption expenditure. When calculating this price, the utility uses the user’s actual electricity consumption as the billing basis.

As a result, the total electricity bill equals the sum of these two separate charges.

Electricity Fee Calculation Structure

Penalty Rules for Exceeding Approved Demand

If actual maximum demand exceeds 105% of the approved demand value, the utility doubles the electricity demand charge for the portion above 105%.

Conversely, if actual maximum demand stays below 105% of the approved value, the utility charges the fee according to the approved demand value.

How Energy Storage Reduces Demand/Capacity Charges

When users pay based on fixed transformer capacity, the price remains constant. However, when they pay based on maximum demand, the electricity demand charge varies with the system’s power over a certain period. After installing an energy storage system, the storage unit’s power can replace part of the transformer capacity to supply the load. This smooths the load’s power peaks and lowers the overall capacity demand. Consequently, the user reduces the electricity demand charge.

Key Strategies

Peak Shaving During High-Demand Periods: First, energy storage systems can release stored energy during peak electricity consumption periods, thereby reducing demand on the grid and lowering  the electricity demand charge. Since electricity prices during peak hours are typically higher, enterprises using energy storage systems to balance loads can not only reduce electricity expenses but also ensure the stability of power supply.

Optimizing Power Structure: Second, energy storage systems can help enterprises optimize their power structure and reduce power capacity requirements. By properly configuring energy storage equipment, enterprises can store electricity during low-price periods and use the stored electricity during high-price periods, thereby reducing overall power capacity demand and lowering basic electricity fees.

Emergency Backup Power: In addition, energy storage systems can also provide enterprises with emergency backup power functions, ensuring power supply during emergency situations. This not only avoids production interruptions caused by power outages but also avoids additional costs due to insufficient demand or capacity.

Case Study

Here is a simple example of how energy storage reduces the electricity demand charge. Suppose the demand price for a certain voltage level in a certain region equals 40 yuan/kW/month. The enterprise operates at 800 kW for most of the time, but occasionally reaches 1300 kW.

Before Installation

The electricity demand charge = 1300 kW × 40 yuan/kW·month = 52,000 yuan/month.

After installing a 500 kW / 1045 kWh energy storage system

During peak periods, the system maintains the transformer power within 800 kW. Therefore, the new electricity demand charge = 800 kW × 40 yuan/kW·month = 32,000 yuan/month. This reduces the electricity demand charge by 20,000 yuan each month.

Conclusion

Industrial and commercial energy storage systems do more than just provide a peak shaving and valley filling profit model. They effectively reduce electricity demand charge through load balancing, optimizing the electricity consumption structure, and offering emergency backup. As a result, they save costs and improve efficiency for enterprises. As energy storage technology continues to advance and costs keep falling, more and more enterprises will likely choose energy storage systems to lower their electricity demand charge and overall electricity expenses.