What is a Load Profile and why is it Important?

A load profile defines how an electricity customer uses its electricity over time. It is created using measurements of a customer’s electricity use at regular intervals, typically one hour, thirty or fifteen minutes, and provides an accurate representation of a customer’s usage pattern.

Since this requires the use of expensive interval meters, for most customers utilities conduct load studies using interval metering on samples of customer groups or segments and use the results to represent the segment’s usage pattern. Unless you have an interval meter, your load profile, for electricity supply pricing purposes will be based on your Rate Code Average Load Profile and your month-by-month total usage.

A basic fact with electricity pricing is that prices are lowest at night and on weekends.  A fixed price is determined by creating a weighted average price for your electricity usage for each interval and the cost of electricity for that time period.  Since nights and weekends have the lowest cost, the more relative usage during these periods, the lower your average cost will be.

Let’s look at some examples:

Residential-Load-Profile

 

This is an average residential load profile.  You can see that the usage peaks are between the hours of 5PM and 10PM, when people come home from work, watch TV, etc.  Usage then drops off, with the lowest point at 3:00AM.  You may say, “All my lights are off at that time!”.  Remember, these numbers are averages of all residential users.  Many are night-owls.  Some work second shift jobs.

What is important to understand is that this is the average load profile that is used when pricing residential electricity.  This graph will vary with your geography, since heating and air conditioning uses electricity, with difference kWH requirements depending on our weather.

GS1-Small-Bus-Load-Profile

This is the load profile for a Small Business customer.  Note that the maximum usage is between the hours of 8:00AM and 4:00PM.  This is when electricity is most expensive, so the average cost will be higher than a residential customer, in most cases.

GS2--Business-Load-Profile

Large Commercial Users will have an average load profile like this one.  Again, note that the maximum usage is between the hours of 8:00AM and 4:00PM, which is when electricity is most expensive.

The primary difference from the small commercial user is that there is a much more significant amount of electricity used during the peak periods.  As a result, the price will likely be higher than the small commercial customer pays, since the weighted average of usage by hour, will be skewed toward the peak hours.

3-Shift-Mfgr-Load-Profile

This load profile is for a manufacturer that is operating with three shifts.

Note that their electricity usage varies very little during the entire 24-hour period.  From a supplier perspective, this is a very attractive load profile.  The high usage during the off-peak hours will help this customer obtain a much lower price, if they obtain a competitive supply contract.  If they do not get a contract, they will be short-changing themselves by not taking advantage of their preferential load profile to reduce their electricity costs.

In Summary, your company’s Load Profile has a major impact on your electricity price.  If you wonder why it is so difficult to simply call a supplier and get a price quotation the phone, this is one of the reasons.  Getting the best price for your electricity supply is more complicated than most people realize.  Just one more reason why an experienced broker can help you navigate the energy procurement process.

 

 

What is Index Pricing? Is it worth considering?

When most companies contract their electricity, they obtain fixed price contracts to hedge or protect their business from price fluctuations. In essence, they are paying a small premium for price insurance, providing the guarantee that their electricity price will not increase for the entire term of their contract.

But some companies are OK with some risk.  They believe that the energy markets are not likely to increase in price over the near term.  If this is what you believe, you might want to consider a variable or index priced electricity contract.  Your price will change month-to-month, but you will be buying exactly what the market charges.  This post is intended to educate you on a what can be a confusing subject.  Customers of some suppliers of index products might have been mislead by their sales people.  Our goal is to make sure that every customer understands exactly what their options are.

An Index Price Contract is based on the LMP (Locational Marginal Pricing) Index price, which is readily available by viewing the Independent System Operator (ISO) websites.  This is the wholesale price of electricity which changes every fifteen minutes.  Your price for the month will be based on how much electricity you use during every fifteen minute period of every day, times the LMP price for that fifteen minute period.

typical_load_profile

The process may seem complicated at first, but it starts with your Rate Code.  Your Rate Code tells the supplier what your Load Profile looks like.  A Load Profile defines how a customer uses its electricity every hour of the day and every day of the week for 365 days in the year.  Most businesses have the majority of their electricity usage between 8AM and 6PM.  Their weekend and night usage is typically lower.  So their load profile defines this.  A manufacturer running three shifts would have a very different load profile.

Your company may have an Interval Meter, which records your electricity in fifteen minute increments.  This data is used to create your Load Profile.  Most smaller users, with under 1,000,000 kWH/year of usage do not have an Interval Meter, so their load profile is defined as the average for all users in their Rate Code category.

Why is the Load Profile important?  Because with Index Pricing, you will be charged based on the LMP price for every fifteen minute period.
Hourly-LMP-Graph

 

 

This graph on the right shows you what the Real-Time LMP price is, for this particular day in the ISO-NE zone.  The price you pay will be based on this information,

Now to an example:

  1. Assume you use 100,000 kWH in a given month.
  2. Your load profile can be used to determine how many kWH you use every fifteen minutes.
  3. Your kWH usage for that fifteen minute period is multiplied by the LMP price.
  4. A total for all the fifteen minute periods is added up.
  5. Finally, the ancillary charges are calculated and added to the bill.

Index Pricing has risk.  You will experience months with very low price, while other months will have very high prices.  On average, for a one-year period, you will likely save money.  But you must have the emotional comfort to understand that prices could fluctuate widely from month to month.  For this reason, Index Pricing is not usually for the small business customer, unless they really understand how it works.

For large electricity users, a Block and Index contract gives them the best of both worlds: you obtain a fixed price for a specified block of kWH usage and then pay the floating index price for the remainder.  This allows you to limit your risk exposure to rising prices (the block price) while benefiting from possible drops in prices with the index.

Finally, the chart below shows the Real-Time LMP price in MWH.  You divide the number by 1000 to calculate the per kWH price, before adding ancillary fees, which will add roughly $0.02 to the kWH price.  Please contact us if you would like to learn more about electricity and gas pricing option.

FIve-Minute-Real-Time-LMP

What is Load Factor?

Load factor is an expression of how much energy was used in a time period, versus how much energy would have been used, if the power had been left on during a period of peak demand. It is a useful indicator for describing the consumption characteristics of electricity over a period of time. Customers whose facilities are metered for demand can readily determine the load factor for any given month. Facilities billed at highest peak demand during the billing period should avoid periods of increased demand whenever possible.

How to Calculate Load Factor

The load factor percentage is derived by dividing the total kilowatt-hours (kWh) consumed in a designated period by the product of the maximum demand in kilowatts (kW) and the number of hours in the period. In the example below, the monthly kWh consumption is 65,000 and the peak demand is 125 kW. There were 30 days in the billing period.

Load Factor = 65,000 kWh/(125kW x 30 days x 24 hours/day) = 65,000kWh/90,000 kWh = 72.2% load factor

This load factor indicates the monthly energy consumption of 65,000 kWh used by the customer was 72.2% of the total energy available (90,000 kWh) for use at the 125 kW level.

Why is Load Factor Important?

The demand rate structure automatically rewards customers for improving their load factor. Since load factor is an expression of how much energy was actually used compared to the peak demand, customers can use the same amount of electricity from one month to the next and still cause their average cost per kilowatt-hour to drop as much as 40% simply by reducing the peak demand. For instance, a 25% load factor in the summer would yield an average cost per kWh of 13.2 cents, while an 80% load factor would yield an average cost per kWh of 7.9 cents. Remember, this is comparing two months in which the customer used the same amount of electricity (kWh) with different peak demands.

How to Improve Load Factor

Lowering the facility’s peak demand is the primary step to improving load factor and will reduce the amount paid monthly for electricity. To determine the potential for improving load factor, analyze billing records to identify the seasons during which the peak demand is the greatest. In general, the greatest demand for electricity occurs on hot days in the summer. While this implies that a large electric load is dedicated to space cooling, it is not necessarily true for every facility. It is always best to observe operations at the facility to determine what equipment may be causing the peak demand. Once the contributing equipment loads have been identified, determine what can be done to sequence or schedule events or processes in order to minimize the simultaneous operation of high wattage equipment.  Demand controllers can help prevent high demand equipment from cycling on at the same time, which will reduce your demand charges.

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