Optimizing Electric Fleet Operations & Reducing Demand Charges


Transitioning to a zero-emission vehicle (ZEV) fleet involves numerous considerations, and among them is the crucial element of electricity billing. As electric vehicles (EVs) increasingly become the norm in transit fleets, the role of the fleet manager is evolving to include a deep understanding of new operational complexities such as energy usage and costs.

Today, a substantial part of operating costs for electric fleets can be attributed to electricity billing, making it crucial for fleet managers to have awareness of concepts like demand charges and how to reduce them. Initial deployments of electric vehicles in fleets clearly showed the importance of taking demand charges into account as early as possible in the ZEV deployment process and implementing strategies to mitigate demand charges and reduce electric bill costs.

This overview takes a closer look at demand charges, with an explanation of how they work, why they exist, and methods fleets can use for demand charge reduction while still prioritizing and meeting operational goals.

Reducing demand charges without compromising fleet operations is not only possible but critical for the long-term viability of transitioning to electric vehicles. Without a proper management strategy, transit agencies can find themselves facing unnecessarily high bills.

Technology has risen to meet this challenge in the form of smart charge management tools. These tools use real-time data and advanced algorithms to optimize charging schedules, taking into account factors like peak and off-peak hours, the state of charge of each vehicle in the fleet, and a multitude of additional variables.

The result is a system that can intelligently reduce peak demand, thereby minimizing demand charges without compromising the operational requirements of the fleet. This ensures that vehicles are always adequately charged and ready for deployment, maintaining operational efficiency as the top priority.

Utilizing advanced smart charge management tools and adopting a holistic approach, agencies can successfully mitigate demand charges without sacrificing efficiency and reliability of operations. The key to achieving this balance lies in a holistic approach that links energy management with operational objectives. For example, by coordinating charging schedules with route timetables, it’s possible to lower demand during peak electricity pricing periods without affecting service quality.

Similarly, data analytics can be employed to predict when the highest demand across the fleet will occur, thereby allowing for preemptive adjustments in the charging schedule. The result is a harmonious relationship between reducing electricity costs and maintaining fleet readiness and reliability. In this way, the transition to an electric fleet becomes not just an environmental milestone but also an operational and economic success.

The significance of demand charges for fleets

A survey of U.S. demand charges from the National Renewable Energy Laboratory (NREL) based on analysis of more than 10,000 utility tariffs revealed that “the contribution of demand charges varies from customer to customer, but typically range from 30-70% of the customer’s electric bill.”

Another assessment from the National Association of State Energy Officials looked at electric utility rate structures from a sample of 41 electric service providers and found that “demand charges constitute a significant portion of most DC fast charging site host’s electric bills and can be one of several barriers to transportation electrification. On average, demand charges accounted for nearly 74 percent of sample commercial and industrial electric bills.”

A review by CalSTART of the electric rate schedules of 26 major electric utilites in Arizona, California, Colorado, Florida, Georgia, Illinois, New York, Oregon, Texas, and Washington, found that 21 of 26 used demand charges, ranging in price up to $23.65/kW, although in some optional Time-Of-Use (TOU) rates, demand charges could go up to $59.24/kW.

It’s clear that demand charges can vary widely, and for many customers they can represent a significant part of the electric bill, which plays a key factor in operating costs for electric fleets. The NREL survey also noted that high demand charges weren’t just restricted to a single region of the country, but also “found to be in states not typically known for high electricity prices, such as Colorado, Nebraska, Arizona, and Georgia.”

What are demand charges?

Demand charges are costs electric utilities charge based on a customer’s peak power demand during specific intervals, distinct from overall energy consumption.

Unlike residential electric bills where you’re only charged based on the total electricity consumed, commercial operations (including vehicle fleets) see an additional layer. Their bills reflect both their consumption and their peak power draw, or rate of consumption, as non-residential operations often have much higher power demands.

To really understand demand charges, it’s essential to start with a foundational knowledge of energy and power, and how you get charged for each one.

It’s clear that demand charges can vary widely, and for many customers they can represent a significant part of the electric bill, which plays a key factor in operating costs for electric fleets. The NREL survey also noted that high demand charges weren’t just restricted to a single region of the country, but also “found to be in states not typically known for high electricity prices, such as Colorado, Nebraska, Arizona, and Georgia.”

Understanding kW vs. kWh

Commercial electric bills typically consist of 2 main components: energy charges measured in kilowatt hours (kWh) and power charges or “demand charges” measured in kilowatts (kW).

Consider the electrical grid akin to a garden hose used for watering plants. However, instead of just being charged for the total amount of water coming out of the hose, imagine you get charged more depending on whether you use the hose at full force or not. If you let the water trickle out, you get charged for the amount of water used plus a fee for the low level of total water pressure. But if you turn up the hose to full force with high water pressure, you get charged for the amount of water used plus a much larger fee for the higher level of water pressure. This is how demand charges work.

In the hose analogy, the kW demand charges would correspond to how powerfully the water is coming out at a specific moment, and the kWh energy charges would refer to the amount of water used over the duration of the session.

Consider a scenario with 8 electric buses and an unmanaged approach to charging. Each bus has 500 kWh of energy on board, all charging at the same time using its own 180 kW charger. Let’s say you charge 400 kWh of energy each day per bus for 30 days; you would have a total kWh consumption of 96,000 kWh and a peak power of 1,440 kW. At 10 cents per kilowatt hour and $15 per kilowatt, you’d be paying $9,600 for energy consumption and $21,600 for peak power demand.

Now imagine you have 100 of those same electric buses, using 400 kWh of energy each day and continuing with an unmanaged approach to charging, you would see energy costs shoot up to $120,000 and demand charges to $270,000.

It’s easy to see how demand charges can quickly escalate and end up representing far more than half of your utility bill. When even more vehicles are added and larger fleets of EVs are deployed, and faster charging is added at higher kW levels, demand charges can increase rapidly if not kept under control.

Grid upgrades vs. demand charges

Going back to the analogy, once the maximum amount of pressure (or demand) is reached that the hose can allow, something else needs to be done if a larger amount of water is needed faster. While it serves daily watering needs efficiently, if a sudden necessity arises, like dousing a large fire, that garden hose is insufficient. No matter how much you open its tap, it can’t match the urgency and volume needed. In such a scenario, a larger, more powerful fire hose becomes essential.

Similarly, when there’s a significant spike in electricity usage, as with numerous vehicles charging simultaneously, the existing infrastructure connecting the facility or depot in question to the grid may be inadequate and unable to handle the amount of kW required at any given point in time. In energy terms, this necessitates the deployment of upgraded transmission lines, equivalent to switching to a bigger hose. This would be a separate charge, in addition to demand charges.

Why are demand charges needed?

Electric utilities have infrastructure — transformers, substations, transmission lines, etc. — designed to handle a particular average electricity demand. When consumers or businesses have occasional high power demands (high kW), the utility must have the necessary infrastructure in place to accommodate these peaks, even if they occur infrequently.

Building and maintaining a robust infrastructure that can handle these high-demand moments is expensive. There are costs associated with bigger transformers, thicker transmission lines, and advanced technology to manage and distribute the power efficiently.

When a commercial entity (or any customer) frequently has high peak demands, they’re essentially requiring the utility to have a “bigger hose” always ready for them. Even if they don’t use it all the time, the utility must be prepared. That’s where demand charges come in.

By charging for peak kW demand, utilities can recoup some of the costs associated with ensuring the grid is always ready for these high-demand scenarios. It’s a way to ensure fairness in pricing. Those who place higher strain (even occasionally) on the grid infrastructure contribute more to its upkeep.

In essence, just as a community might need a more substantial water infrastructure if everyone wants the capability to use water at full blast simultaneously, electric utilities need more extensive (and costly) infrastructure to handle occasional high power demands from customers. Demand charges are a mechanism to help cover these costs.

The impact of demand charges on fleet operations

For any organization, sudden and unexpected expenses can hinder operational efficiency and financial planning. In the transition to electric vehicles, fleets come face-to-face with this reality, and some have been caught off-guard by unexpectedly high demand charges from their initial EV deployments. Demand charges can cause a significant uptick in energy bills, posing budgetary challenges.

It’s essential to recognize that while transitioning to electric fleets, some demand charges may inevitably occur. However, the magnitude of these charges can be significantly influenced by proactive strategies and smart planning. By deploying effective solutions, fleets can achieve both their operational and sustainability goals without the surprise of unexpectedly high electric bills.

Strategies to reduce demand charges

Smart charge management

Smart charging software is a game-changer when it comes to demand charges, as one of the most effective strategies to reduce peak power. Smart charge management systems can intelligently manage the charging rates of vehicles based on various factors like grid demand, battery status, and utility rates. By distributing charging loads more evenly or during off-peak hours, these systems can prevent sudden spikes in power draw, thereby mitigating demand charges.

Optimizing charge windows:

One of the core features of smart charge management systems is the ability to identify and leverage off-peak hours. Utilities often have periods where electricity rates are lower, usually during times of lower demand. Smart chargers can be scheduled to charge predominantly during these windows, capitalizing on reduced rates and minimizing the impact of demand charges.

Load balancing:

For fleets with multiple vehicles charging simultaneously, smart charging systems can distribute the load among vehicles. For example, if one vehicle needs a quick top-up to be operational while another is idle for hours, the system might prioritize the former, ensuring operational needs are met without causing a significant spike in power draw.

Dynamic load management:

At the heart of smart charging is its ability to adjust charging rates in real-time, also referred to as dynamic or automated load management. This adaptability is based on various data inputs, including grid demand, the state of the vehicle’s battery, and current utility rates. For instance, if the grid is experiencing high demand, the system might decide to reduce the charging rate temporarily to avoid additional strain and associated higher costs.

Vehicle fleets have unique operational needs

While some businesses have more control over choosing what time of day they consume more energy and may be able to shift their operations to reduce demand during peak times, vehicle fleets are often working with very tight schedules already.

The times vehicles are available to charge is restricted to specific windows of time, which must be lined up with route schedules, and weighed against utility rates at different times of day, adding an additional layer of complexity.

Above all, when considering different energy management strategies for a vehicle fleet, it is imperative to ensure that schedule needs are considered first and foremost, and that charging schedules do not hinder fleet operations or cause delays in service.

One feature that a smart charge management system designed for vehicle fleets can have to enable the most efficient operations is the ability to do advanced data simulations, sometimes referred to as an emulator or “digital twin” capabilities.

With a digital twin of your fleet, the charge management system can run scenarios on the simulated fleet to understand the different operational impacts that various charging activities may have on a fleet, and ensure the best options are chosen for your fleet before being implemented in operations.

Stationary energy storage and solar integration

Another demand charge management solution is stationary energy storage, which involves using battery systems to store energy when demand from the grid is low. This stored energy can then be used during peak demand times, creating a more controlled power draw from the grid.

Pairing stationary storage with solar panels further enhances its benefits. Solar can provide a steady input of energy into the storage system during daylight hours, reducing the need to draw power from the grid. This not only mitigates demand charges but also brings fleets closer to sustainability goals.

Battery storage can add a layer of resiliency due to backup power, but even without the value of backup power, studies have found that stationary battery storage systems can have an attractive return on investment primarily from demand charge reduction. According to a Greentech Media Research study, $15/kW was the minimum demand charge rate at which battery storage systems make economic sense, and a McKinsey & Company report noted $9/kW as the rate at which some commercial customers could break even on a stationary battery storage system.

In addition to saving on energy and power costs while adding backup power, stationary battery storage also opens up the possibility for an additional revenue stream from selling power back to the grid from the battery when it’s not needed to charge up the fleet.

A smart charge management system designed for fleets can also include integration with a stationary battery storage system and facilitate critical communications between fleet charging and stationary battery storage usage.

Charge management systems can dynamically manage the usage, repurposing, and sale of energy back to the grid based on predetermined triggers. This approach provides a more seamless transition, allowing fleets to focus on operations while the charge management system handles responding to energy and power levels in real-time based on a set of rules.

Greentech Media. “Commercial Energy Storage Economics Will Be Attractive in 19 US State Markets by 2021.”

McKinsey & Company [D’Aprile, P., Newman, J., and Pinner, D. “The New Economics of Energy Storage.” August 2016: http://www.mckinsey.com/business-functions/sustainabilityand-resource-productivity/our-insights/the-new-economicsof-energy-storage]

Understanding utility rates and engaging with providers

Navigating the world of utility rates can be complex, especially when transitioning to an electric fleet. Each utility company often has its own set of pricing structures, incentives, and programs tailored to different customer profiles.

For instance, Pacific Gas and Electric (PG&E), a major utility provider in California, has introduced initiatives like the EV Fleet Program. This program is designed to support businesses in their transition to electric vehicles by offering incentives and infrastructure support to mitigate some of the upfront costs associated with electric vehicle charging installations.

Another noteworthy approach some utilities are adopting is the concept of “demand charge holidays.” Recognizing the challenges commercial entities face with demand charges during their initial transition to EVs, utilities may offer a period during which these charges are either reduced or eliminated entirely. This grace period allows fleets to adjust their operations and understand their energy consumption patterns better without the immediate pressure of high demand charges.

However, these demand charge holidays are not indefinite. Utilities eventually begin phasing back in demand charges, gradually reintroducing them over time. This phased approach offers organizations a smoother transition, giving them ample time to implement mitigation strategies, from smart charging to energy storage solutions.

Engaging directly with utility providers is crucial. Establishing a line of communication allows fleet managers to be updated on any new programs, incentives, or rate changes. Furthermore, by discussing the fleet’s specific needs and operational patterns, utilities can often provide insights or tailored solutions that can lead to significant savings and operational efficiencies.

The journey to a zero-emission vehicle fleet comes with challenges like dealing with demand charges, but with informed decisions, strategic planning, and smart charge management software solutions, fleets can navigate the intricacies of electricity demand charges without compromising operations.

Smart charge management systems that are designed for fleets not only provide a way to reduce demand charges and manage electricity load, they also ensure that fleet operations remain the topmost priority.

By leveraging innovative technology, engaging with utility providers, and optimizing operations, the road to sustainable transportation is more clear and economically viable than ever before.

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