One of the more significant cost components that comprise your total electricity price is known as a capacity charge, which is the rate a customer pays to ensure their maximum amount of electricity supply is available on the power grid at all times throughout the year. The total capacity charge is made up of both a capacity tag and a capacity cost. The capacity cost is the dollar amount per kilowatt of your capacity paid to generators to ensure they are available during peak hours. But what exactly is a capacity tag?
Capacity Tags Explained
A capacity tag is measured by the total kilowatts of electricity demand that a customer uses during the peak hour(s) on peak day(s). It can also be referred to as a “peak load contribution,” or PLC. Peak day(s) are usually the hottest days of the summer when electricity consumption is at its highest throughout the year, as electricity demand to power air conditioning units is in full swing.
Since each building or facility uses electricity differently to power their daily operations, each electricity account is assigned a unique capacity tag that is specific to how and when that facility uses electricity. Every year, the Independent System Operator (ISO) releases the “peak hour” for the prior year that details the single hour that all customers within the ISO’s footprint drew the most power from the grid. Once the peak hour is established, the individual utility companies that deliver power to the customers assign each account their share of that peak hour electricity consumption based on their contribution. Once each account’s tag has been set, customers will begin to pay their share of the capacity cost for the following year.
There are differences between each ISO’s calculations that set a customer’s capacity tag. For example, the New York ISO (NYISO) uses the single peak hour on a non-holiday weekday during the months of July and August, which sets a customer’s capacity tag effective May 1st of the following year. PJM, which is the ISO that covers 13 states, including Pennsylvania, New Jersey, and Maryland, uses the top five peak hours throughout the year and takes an average of those five to set each customer’s tag effective June 1st of the following year.
Using excess energy for even one hour on a peak day during a peak hour can affect the following year’s capacity tag, and in turn, your electricity bill.
Curb Your Usage
While you can’t control the cost of capacity per unit, you can control your capacity tag that gets assigned to your accounts. Customers can take action to control their capacity tag by either reducing their consumption during specific peak demand timeframes independently, or by participating in local demand response programs.
Customers can earn revenue by curtailing their electricity usage through a demand response program. Businesses that are major electricity users can get rewarded by curtailing usage during the forecasted peak times throughout the year. The forecasted peak times usually occur a few times each year, and for varying durations. The peak times are anticipated in advance using software and data, so you can make plans to curtail your usage during these times. The result is less power being drawn from the grid, which helps stabilize the supply vs. demand balance, and can lead to significant payments to customers who participate.
Contact a Energo Advisor to learn more about how you can take control of your energy usage, leading to lower electricity bills and a new revenue stream for your business!