Potential Unintended Consequences
Jim Pyke is a managing director in Houlihan Lokey’s Strategic Consulting business. He is based in the firm’s Chicago office. Prior to joining Houlihan Lokey, he was an executive with Quanta Renewable Energy Services and was responsible for driving startup growth and building the organization.
Nic White-Petteruti is an Associate in Houlihan Lokey’s Strategic Consulting business. He is a licensed Professional Engineer with nearly a decade of consulting experience in the energy and power industries.
In Part 1, we walked readers through considerations in implementing residential demand charges. The most important conclusion is that utilities may motivate customers to adopt behind-the-meter storage.
While adding a demand charge will better align the costs of delivering electricity with customers' bills, it is important to identify the right level of demand charges.
We have demonstrated that it is possible to incent a customer into pursuing behind-the-meter storage if a demand charge is set at too high as a percentage of a customer's total bill.
Utilities with high average electricity prices are most at risk. But, as the costs for behind-the-meter storage decline, even utilities with average prices will risk adoption of storage by customers, should they implement demand charges.
Although demand charges can create unintended consequences, they are still a potential part of the utility rate design toolkit.