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What Retailers Need to Know About Their Energy Bill — and How to Lower it

Energy is the fourth largest in-store operating cost for retailers, with the average 50,000-sq.-ft. retail building spending around $90,000 each year on energy costs. Retail building managers are constantly trying to better regulate their buildings’ energy costs, so understanding where those charges come from can be extremely beneficial.

Commercial utility charges are different compared to a residential customer. For commercial daytime peaking customers, on-peak electricity can costs up to twice the price of nighttime electricity, or more. Unlike homes, shopping centers and other retail buildings are charged for energy consumption plus peak demand. So, what is this extra demand charge on utility bills and what is the best way to lower it?

Uncovering the mystery of demand billing

While residential electric rates essentially charge only for the kilowatt-hours (kWh) consumed each month, retail buildings’ utility bills are calculated based on energy consumption and peak demand. See the breakdown of energy usage as kWh and demand charges as kW in both the supply and delivery sections of the bill.

Tip: There may be more than one type of demand charge listed (on/off peak, seasonal, coincident).

Energy consumption is based on the total amount of electricity used by the customer, however the demand charges are based on the highest rate of electrical use, which occurs during a 15- or 30-minute period during the billing month. Many retail businesses don’t realize that demand charges can make up to 70% of the utility bill. This peak demand for electricity can be traced to modern heating and cooling needs, with air conditioning making up 40% of a building’s peak electricity needs.

Due to demand for air-conditioning, electricity tends to be most expensive during the day when the demand on energy is the highest and the electric grid is closest to its maximum capacity. Because shopping centers are open during peak energy hours, finding relief from high electricity costs can be tricky.

How to lower the utility bill

Time of use rates (TOU) can offer significant savings to retail managers that can use technology to shift energy use to off-peak periods. In fact, according to the Edison Electric Institute, off-peak electricity is the only form of energy that has stayed the same cost or gone down in the past 30 to 40 years, while daytime electricity has continued to increase.

What if a retail building does not have a TOU option and the energy charges are similar during both day and night periods, otherwise known as a “flat rate” or “blended rate”? Those terms can give the impression that electricity costs the same both day and night. However, energy providers are either charging a higher overall flat rate, and/or demand charges. Demand charges are typically charged to consumers to cover the costs of building and maintaining the power infrastructure needed to provide energy to retail facilities during peak demand hours. To reduce costs the consumer can reduce energy consumption during peak demand periods and/or negotiate a better flat rate.

Negotiating a better rate

Negotiating a better rate first requires knowledge of the building’s monthly Load Factor (LF). A high LF is good and will tell retailers how sensitive their retail facility is to demand charges. A perfect LF of 100% would mean the retailer is using the same amount of energy both day and night all month.

Tip: To figure out the LF%, divide the monthly electric load (kWh) by the amount of hours in the month and then divide that by the month’s peak demand and multiply by 100.

For example, a large retail building may use 60,000 kWh per month. Assume that its monthly peak load is 182kW. First determine average load by dividing total energy use for the month by total number of hours in the billing cycle. Calculate (60,000kWh divided by 730). The average load is 82kW. Then divide this average load by the peak load. Calculate (82kW divided by 182kW). Then convert to a percent. The building has a 45% LF.

Tip: If there are time of use rates, the retailer will need to make two LF calculations, one for the off-peak and the other for on-peak.

To improve the building’s LF%, make a goal to reduce the peak kW by at least 16%. This can be done with thermal energy storage.

Thermal energy storage

Cooling, ventilation and refrigeration make up about 30% of a retail building’s total energy use. More importantly, air-conditioning is the main culprit behind peak demand. Thermal energy storage reduces cooling costs dramatically by reducing peak demand and taking advantage of TOU rates. Thermal energy storage can also be used for demand response while not affecting indoor comfort.

This cool energy storage solution works as a battery to store ice inside insulated tanks. The next day, the ice melts to cool the building. By storing cooling overnight, during off-peak hours retail buildings avoid energy consumption during on-peak hours while still maintaining the desired temperature during the day.

Let’s apply thermal energy storage to the same hypothetical retail building above with the 45% LF. A partially sized thermal energy storage system can reduce on-demand cooling needs by 40%. If 40% of the building’s peak load is cooling, then thermal energy storage can reduce the peak load by 16%. (Calculate 40% of the 182kW peak load and multiply that by the 40% cooling reduction to get 29kW. 16% of 182kW is 29kW.) Therefore, the peak load can be reduced to 153 kW. (Calculate 182kW – 29kW.) The LF would be the average load divided by the new peak. (Calculate 82 divided by 153). The new load factor after a 40% peak cooling demand reduction with the partially sized thermal energy storage is 53.5%. A full thermal energy storage would reduce demand even more providing more dramatic results.

Demand response

This option can also help with air-conditioning loads and improve load factors while providing great savings by paying retailers to stop consuming energy at times when the grid is congested. The problem with this option is retailers are in the business of providing a comfortable environment for shoppers — they don’t want to cause discomfort which may cut into sales. So the best way to do demand response is transparently by combining it with energy storage. The thermal energy storage would be available for discharge when it’s time to reduce energy consumption. Demand charges would be lowered plus the utility would pay the retailer to not use energy!

Energy efficiency

One more important strategy, energy efficiency, can also reduce demand some. However, keep in mind that a more energy efficient building doesn’t necessarily mean a better building to the utility. To illustrate, a net zero building, by definition, purchases zero energy from the grid in the entire year and yet demands electricity from the grid when the sun isn’t shining. So the LF is Zero.

The Net Zero building is getting an amazing service from the Grid all year but buys no energy from it all year. With a reduced ability to charge retailers for energy, utilities must rely on more expensive fixed fees and demand billing for revenue. Furthermore, demand billing can add up. Some utilities have ratcheted pricing which means retailers carry over a percentage of the highest demand charges for the next 12 months. To help bolster energy efficiency efforts demand response and energy storage strategies can improve LF% to keep energy costs under control.


Energy bills are tricky, however if armed with the correct set of facts, tremendous savings can be uncovered.

To summarize, here are some guidelines to reducing the energy bill:

1. Start with having the most energy efficient building possible.

2. Research all the energy (kWh) and demand (kW) costs. Investigate
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