Reducing energy use at peak times is called peak shaving or peak clipping. Peak shaving can realise a range of benefits when it coincides with peak demand, and therefore peak prices, in the wholesale market.

Peak shaving, as illustrated in the figure below, can be achieved by shedding load or by using onsite standby generation facilities during peak times. When reducing usage at peak times, it can enable you to stay within your contract’s maximum demand and can optimise network and retail tariff costs.

Source: Marsden Jacob Associates' analysis (2011) 

Peak shaving is most appropriate when

  • total load on a site is approaching the agreed maximum demand, enabling you to avoid penalty charges; or
  • the load on the distribution network is approaching its maximum.

When load on the distribution network is approaching its maximum, end users can enter into an arrangement with the distribution network service provider to ease congestion on the system and enhance network reliability. These types of arrangements should be discussed with your retailer however to ensure changes in your demand profile do not impact adversely on their energy supply arrangements and result in you paying higher energy prices because your load appears to be more volatile.

Capturing the benefits

There are a number of ways for end users to capture the benefits of peak shaving:

  • By agreeing to a demand-side response clause with your retailer, you can shed load at times of high underlying spot prices in return for a pre-agreed compensation.
  • By purchasing all, or part, of your energy requirements directly from the wholesale electricity market, and avoiding loads when the spot price exceeds a certain level, you can achieve a lower average cost for energy. This approach requires very careful assessment of the opportunities and risks, investment in suitable monitoring and control systems and very thorough training of production staff and management personnel. Financial risks can also be managed through appropriate financial instruments. See wholesale markets.
  • In the gas market, by having a fixed price retail energy contract, end users can re-sell unused energy created by load shedding back into the spot market, either directly or through a demand-side aggregator.

Industry Case Study— Oxford Cold Storage - Shedding load to stay under maximum demand

Oxford Cold Storage's main demand management focus is to ensure that the main site does not exceed its total demand level, currently 3,546 kW; and total demand is reduced, which will enable the company to reduce its bill by $80 per kW per year.

Oxford Cold Storage manages demand using the thermal mass of their cold storage facilities.

Freezers can be switched off for periods of up to 24 hours. The duration of the downtime depends on a range of factors, such as how well insulated the individual freezer unit buildings are, the number of times and duration that doors are opened, and the ambient outside temperature.

By switching off freezer units, Oxford Cold Storage is able to halve its load within 15 minutes. However, once a freezer has been switched off for some time, it is sometimes necessary to increase energy use above normal operating levels to return contents to the appropriate temperature.

Oxford Cold Storage has also successfully implemented measures to reduce maximum demand charges.