Christian M. 5 min read

Reducing peak demand charges with solar energy

In this article, we’ll explain in straightforward terms what ‘peak demand charges’ are and how toΒ avoid them using your own solar panels and solar batteries in the UK.

Let’s go! πŸ‘‡

πŸ“š Contents List

πŸ“ˆ What are peak demand charges?

The peak demand charges are visible in red in this graph. First peak @ 07:30; 2nd peak @ 18:30 (Credit: energy-stats.uk)

Peak demand charges are the expensive electricity prices you pay during “peak” times when everyone uses electricity simultaneously.

Take the early morning between 6 am and 9 am as an example. Most people prepare for a day’s work at this time, turning on lights and appliances like electric stoves, coffee machines, electric heaters, etc.

This predictable surge in demand for electricity during these “peak” times gives rise to the “peak demand charges” because the UK has a fixed number of power generators. A surge in demand over a steady supply equals expensive electricity!

πŸ’‘ Peak demand charges don’t affect households and businesses on single-rate tariffs β€”i.e., those paying a consistent rate regardless of the time of day. They apply only to those on variable tariffs, such as Economy 7 or Octopus’ Agile Tariff.

πŸ’‘ Peak demand charges are specific to electricity tariffs and not gas tariffs. Unlike electricity, excess natural gas can be easily stored, and gas consumption patterns don’t vary as wildly as electricity.

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🌞 What is having your own solar energy?

Solar panels installed on residential rooftops in the Netherlands.

While a significant portion of solar power in the UK is generated by large utility companies, an increasing amount is being generated and stored by ordinary homes and businesses through solar panels, solar batteries and thermal solar collectors:

  • Solar panels: ‘Photovoltaic’ panels that turn incoming solar radiation into valuable electricity.
  • Solar batteries: Chemical batteries are designed to store electricity generated by solar panels.
  • Thermal solar collectors: ‘Water panels’ that capture the Sun’s heat to warm up water without the need for gas or electricity.

This trend has been growing due to the decreasing cost of solar panels and batteries, the UK’s legally binding climate commitments, and expensive electricity amidst the ongoing energy crisis.

πŸ’‘ Other benefits include achieving ‘energy independence’, off-grid living, and even realising a profit by intelligently configuring your solar panels and solar batteries (this is also known as electricity arbitrage).

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🏑 How to reduce peak time charges with solar energy?

Solar panels are usually installed on South-facing roofs in the UK.

It’s time to tackle the central question: How can anyone possibly use their own solar panels and batteries to reduce those hefty ‘peak demand charges’?

The key lies in understanding that these solar power systems come equipped with an EMS (Energy Management System) that allows the user to configure the flow of the generated solar power.

So, by configuring your system to cover the following scenarios, you will be automatically reducing (or even profiting from) peak time charges:

Consume your own solar power during peak times

Solar panels generate electricity from sunrise to sunset. The amount they produce is proportional to the Sun’s position, your panel’s orientation and weather conditions.

On the other hand, “peak demand charges” apply during peak times that tend to haveΒ someΒ overlap with the panel’s generation, particularly during the summer months.

By configuring your panels to supply electricity directly to your appliances during these pricier peak times, you will effectively consume less electricity and pay less ‘peak demand charges’.

πŸ’‘ On a clear yet cool summer’s day, bringing your peak demand charges to zero is technically possible, but this would require a lot of excess solar panels. Incorporating a battery system is much more effective.

Use stored solar power during peak times

Solar panels charging a series of Tesla Powerwall batteries (Credit: Tesla)

There are two issues why solar panels alone are rarely enough to reduce ‘peak demand charges sufficiently’:

  • Peak price times don’t coincide with peak solar power generation.
  • Solar power is intermittent; its output varies based on the season and weather conditions.

Enter solar batteries, enabling users to store excess electricity generated during peak solar hours for use during times of expensive electricity.

The challenge shifts to programming the system to move electricity around like clockwork– considering that each property has a unique solar system and electricity usage patterns.

Once this is overcome, you could forever be waving goodbye to ‘peak demand charges’ altogether.

πŸ’‘ Off-grid properties –i.e. those who unplug grid connection– enjoy complete independence from these costs altogether. This autonomy may even be more beneficial than having the capacity to sell your excess by removing the burden of hefty standing charges. Use our energy price cap checker to see these for yourself!

Signing up to a Smart Export Guarantee (SEG) tariff

Wholesale vs Import vs Export tariffs. Note how the import and export tariffs mimic each other, marking ‘peak demand charge’ times.

This next layer transcends merely reducing your ‘peak demand charges’ to almost zero but takes advantage of the reverse as youΒ become the generator.

On days when you have enough power to meet your peak time consumption and have stored enough to make sure you meet the next, you can start selling your excess electricity back to the grid through an export tariff and generate a profit.

These ‘peak demand charges’ work both ways: it makes electricity expensive to buy but profitable to sell (although naturally, not quite at the same rate…).

πŸ’‘ Remember that your export rates may vary dramatically depending on your export tariff, a ‘fixed’ tariff whose price doesn’t budge to a ‘variable’ tariff whose price changes every half an hour in response to the wholesale electricity markets.

Signing up for Demand Flexibility Services

Finally, the last straw to reducing your ‘peak demand charges’ is to sign up for Demand Flexibility Services, which pays consumers in exceptional circumstances for reducing their consumption during peak times.

This means you can get paid a premium for doing what you already do: Avoiding peak demand charges!

πŸ’‘The Demand Flexibility Service is one of several tools the national grid uses to reduce nationwide electricity demand when it expects to struggle to meet it. For example, a windless and cold evening where wind generators will not generate their expected capacity.

πŸƒ Summary

Essentially, a solar system (yes, it’s named just like our intergalactic home) can help any business or household reduce or downright eliminate the infamous ‘peak demand charges’.

This can be done under any installation complexity, from a DIY installation of old solar panels, all the way to having the entire stack of solar roof tiles + batteries + solar thermal collectors (which can also trim your gas bill!).

Honestly, this is only the tip of the self-generation iceberg: the benefits of having your own clean energy independence are too plentiful for a short article!

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