The first electrical companies were vertically integrated, with control of the entire supply chain: generation, transmission, distribution and billing. In modern electrical networks, these functions are divided between different companies, with slight differences between regions and countries. By understanding how electrical grids work, building owners gain insight into how to reduce electricity bills while making their energy supply more reliable.
In modern electrical grids, electricity is produced by generating companies that compete in the wholesale market. This electricity is purchased by energy retailers, who then sell electricity plans to residential and commercial consumers. There are also transmission and distribution companies, which are responsible for keeping the network operational. When you are charged for electricity, the kilowatt-hour price includes all the costs of the process, plus the profits of the companies involved.
Improve your building's energy efficiency and reduce electricity bills.
As mentioned above, there are small differences between states, regions and countries – not all states have a competitive electricity sector. However, when customers can choose their electricity plan, energy retailers must compete to offer the best rates. This offers consumers more choice and the potential to reduce energy bills by switching plans or suppliers.
Managing demand and supply in electrical grids
Home and business electricity consumption is constantly changing and, as a result, power grids have a variable workload. Electricity consumption typically reaches its lowest point after midnight, as most businesses are closed and the population is sleeping. On the other hand, electrical networks normally reach their peak demand at night:
- People are returning home, using lighting systems and other appliances. In addition, street lights and other external lighting systems are being activated.
- Many businesses are still operating and their energy consumption is combined with residential demand and outdoor lighting.
Maximum demand is currently one of the main technical challenges for electricity grid operators. They must maintain sufficient generation capacity on standby and the grid must have sufficient transmission and distribution capacity to supply all necessary electricity. Power grids with sharp peaks in demand are the most expensive to operate, as there is plenty of idle capacity at all other times. Power plants, transmission lines, distribution networks and transformers have fixed costs, even when their full capacity is used for only a few hours a day.
As solar panels and wind turbines have become more affordable, they have also added variability to power generation. Solar panels and wind turbines produce clean electricity at low cost, but they have a major limitation: they cannot generate electrical energy on demand, as sunlight and wind cannot be controlled. As a result, energy systems with a large percentage of solar and wind energy must respond to sudden changes in both supply and demand.
- Nighttime is especially challenging on grids that use a lot of solar energy, as solar generation stops at sunset, just before peak demand.
- In these cases, a lot of generating capacity must be kept on standby.
Natural gas turbines and hydroelectric turbines have a very fast response and can accelerate generation when there is a sudden increase in consumption. Therefore, these generation technologies are the most common solution to meet peak demand. However, hydroelectricity is only viable under certain local conditions and obtaining project permits is challenging due to the initial environmental impact. For these reasons, natural gas is the only viable option to satisfy peak demand on many electricity grids.
Variable Electricity Tariffs and Peak Demand Management
As power grids become more expensive to operate during peak demand hours, many energy companies charge higher prices per kWh at this time of day. To compensate for this, the lowest kWh prices are prices when demand is at its lowest point. This encourages electricity consumption when the grid is lightly loaded, while also promoting energy savings during peak demand times.
Energy storage systems in buildings are a promising technology: they can be configured to provide energy during peak times, decreasing the total load on the grid. For example, if 100 buildings with energy storage manage to reduce demand by 25 kW each, total demand on the grid drops by 2.5 megawatts. At the same time, building owners can reduce their energy bills by consuming fewer kilowatt-hours when they are most expensive.
The concept of energy storage is typically associated with batteries, but thermal methods are also viable. For example, hot water can be stored for direct use or space heating with fan coil units. Following a similar approach, cooling plants can be equipped with ice storage tanks, which can later be used for air conditioning.