Electricity brokerage can be confusing. There are many technical words and knowing these terms can help you. It makes it easier to choose the right electricity plan. This article explains important terms in electricity brokerage.
Key Terms in Electricity Brokerage
Learning the main terms is important. Here are some key terms you should know:
Kilowatt (kW) and Kilowatt-Hour (kWh)
A kW measures power i.e. the rate at which something uses electricity, whereas a kWh measures energy, the total amount of electricity used, or the capacity to use.
Example: Imagine a 1 kW space heater. That “1 kW” rating means it consumes power at a rate of 1 kilowatt every hour it’s running.
If you turn on this heater for 3 hours, it would use 3 kilowatt-hours (kWh) of energy (1 kW x 3 hours = 3 kWh).
So, kW tells us how much power the heater uses at any moment, while kWh tells us the total energy used over time.
Demand Charge
A demand charge on an electricity bill is an additional fee based on the highest rate of electricity usage (demand) within a specific period, often measured in kilowatts (kW). Unlike regular energy charges, which are based on the total electricity consumed (measured in kilowatt-hours or kWh), the demand charge reflects the peak level of power drawn by the customer at any single moment during the billing period.
Example of a Demand Charge on an Electricity Bill
Imagine a bakery that operates from 6 AM to 6 PM. During a busy holiday season, the bakery uses a lot of electricity to power ovens, mixers, and refrigeration.
In January, the bakery’s electricity bill includes:
- Total energy consumed: 4,000 kWh
- Demand charge: Based on the highest demand recorded, which is 20 kW during a peak hour when multiple ovens are running at the same time.
Billing Breakdown:
- Energy charge: 4,000 kWh x $0.10/kWh = $400
- Demand charge: 20 kW x $15/kW = $300
Total Bill: $400 (energy charge) + $300 (demand charge) = $700
In this example, the demand charge significantly impacts the total bill, reflecting the peak electricity usage, which utilities charge to encourage the bakery to manage its power consumption more evenly throughout the day.
Capacity Charge
A capacity charge is a fee that utilities impose on customers to cover the costs associated with maintaining enough generation and infrastructure capacity to meet peak electricity demand. This charge ensures that there is sufficient power available to meet the maximum anticipated load, especially during periods of high demand.
Example of a Capacity Charge on an Electricity Bill
Consider a manufacturing facility that operates machinery that requires a significant amount of power, particularly during peak production hours. The utility company assesses the facility’s peak demand over the previous year and determines that the maximum electricity usage reached 150 kW.
In February, the facility’s electricity bill includes:
- Total energy consumed: 25,000 kWh
- Capacity charge: Based on the facility’s maximum demand of 150 kW.
Billing Breakdown:
- Energy charge: 25,000 kWh x $0.08/kWh = $2,000
- Capacity charge: 150 kW x $10/kW = $1,500
Total Bill: $2,000 (energy charge) + $1,500 (capacity charge) = $3,500
In this example, the capacity charge is imposed to cover the costs of maintaining sufficient generation capacity to meet the facility’s peak demand. This ensures that the utility can provide reliable power even during times of high usage, benefiting all customers by stabilizing the grid.
Time-of-Use (TOU) Rates
Time-of-Use (TOU) Rates are pricing plans that charge customers different rates for electricity based on the time of day. The main goal is to encourage people to use electricity when demand is low. This helps balance the energy load and can save money for both the utility companies and customers.
Examples of TOU Rate Structures:
- Peak Hours: 4 PM – 9 PM (higher rate)
- Off-Peak Hours: 10 PM – 6 AM (lower rate)
- Shoulder Hours: 6 AM – 4 PM (medium rate)
- For example, if a household uses 1 kWh of electricity during peak hours, it might cost $0.20. During off-peak hours, it might only cost $0.10.
Energy Procurement
The process of finding the best price for electricity. Brokers, like those at Great Energy 1, help clients choose the best plan from electricity providers.
Fixed Rate
A fixed rate is an interest rate that stays the same for the entire time you have a loan or investment. This means your payments will not change, even if market rates go up or down.
Here are some important points about fixed rates:
- Stability: You know exactly how much you will pay each month. This helps with budgeting.
- Long-term planning: You can plan your finances better since your payments won’t go up.
- Common uses: Fixed rates are often used in mortgages, personal loans, and certain savings accounts.
For example, if you have a fixed-rate mortgage with a 4% interest rate for 30 years, your monthly payments will be the same for 30 years. This protects you from rising interest rates in the future.
Variable Rate
A variable rate is an interest rate that can change over time. It is different from a fixed rate, which stays the same for the entire loan or investment period. A variable rate can go up or down based on market conditions or economic factors. It may also change according to a specific index, like the prime rate or LIBOR (London Interbank Offered Rate).
Example:
Let’s say you get an adjustable-rate mortgage (ARM) with a variable interest rate. The initial interest rate might be 3% for the first five years. This rate is lower than what you would find for a fixed-rate mortgage.
After the first five years, your rate will change every year. If the index your loan is tied to goes up, your interest rate might increase to 4%. But if the market rates go down, your interest rate might drop to 2.5%.
This means your monthly payment can change. It may be lower when rates drop and higher when they rise.
Retail Electricity Provider (REP)
A Retail Electricity Provider (REP) is a company that sells electricity directly to people. They work in areas where electricity markets are open to competition.
REPs buy electricity from wholesale suppliers. Then, they sell it to homes and businesses. They offer different plans and prices for customers.
Example: An example of a Retail Electricity Provider is Direct Energy. They operate in many U.S. states. Direct Energy offers different plans, like fixed-rate and variable-rate plans, for customers to choose from.
Transmission & Distribution (T&D) Charges
Transmission and Distribution (T&D) charges are the costs of moving electricity from power plants to homes and businesses.
These charges pay for the wires, poles, and equipment needed to deliver electricity. They include high-voltage transmission lines and lower-voltage distribution networks.
Example:If a utility company charges $0.10 for each kilowatt-hour (kWh) of electricity, the T&D charges might be $0.03. This means that for every kWh you use, $0.03 goes to cover the costs of getting that electricity to you.
Specialized Industry Jargon
- Ancillary Services: Ancillary services keep the power grid stable. These include services like frequency control and backup power. They make sure electricity is always available. Knowing these services helps you understand your bill.
- Energy Arbitrage: Energy arbitrage means buying electricity when prices are low. You use it when prices are high. Brokers use this to save money for customers. For example, using stored electricity during peak times can avoid higher charges.
- Renewable Portfolio Standards (RPS): Rules that require a portion of electricity to come from renewables. These affect how brokers, such as Great Energy 1, source electricity.
- Green Energy Options: Define green energy terms like Renewable Energy Credits (RECs), which certify that electricity is renewable.
- Grid: Explain the grid as the network that transports electricity. There are transmission grids (for long-distance, high-voltage) and distribution grids (for local supply).
- Wholesale Electricity Market: Describe how brokers buy electricity at wholesale prices and pass on savings to clients.
- Curtailment: Define curtailment as a program where clients agree to reduce electricity use during peak times in exchange for incentives.
Tips for Learning Electricity Brokerage Terms
Electricity brokerage terms can change as the industry grows. Here are tips to stay updated:
- Attend energy workshops: These help you learn the latest terms.
- Follow industry news: This keeps you informed of changes.
- Talk to brokers: They can explain terms and answer your questions.
Common Acronyms and Abbreviations
Here are some important acronyms:
- kWh (Kilowatt-hour)
- MW (Megawatt Equal to 1,000 kWh)
- ISO (Independent System Operator)
- PPA (Power Purchase Agreement)
- PUC (Public Utility Commission)
Conclusion
Understanding electricity brokerage terms helps you manage electricity better. It makes choosing the right plan easier. Learn these terms and ask questions when needed. This way, you can make the best choices for your electricity needs.