Peak Shaving vs Load Shifting: Storage Strategies

Summary

Peak shaving and load shifting with batteries can cut demand charges by 20–40% and reduce energy costs by 10–30%. This article explains how to size 0.5–2 hours of storage per kW of peak, compares strategies, and guides B2B teams on ROI, control logic, and standards.

Key Takeaways

• Quantify demand charges (often 30–70% of C&I bills) and target 10–30% reduction using 0.5–1.5 hours of battery storage per kW of peak demand
• Design peak shaving systems to limit 15–60 minute peaks, sizing batteries at 0.5–1.0 kWh per kW of contracted demand to capture 70–90% of savings
• Implement load shifting where on-peak/off-peak price ratios exceed 2:1, with 2–4 hours of storage and round-trip efficiency above 85–90%
• Use EMS controls with 1–5 minute resolution, SoC windows of 20–80%, and inverter ratings of 0.5–1.0C to reliably manage peaks and shifts
• Combine PV plus storage to cover 20–50% of peak load and shift 10–40% of daily kWh, improving battery utilization and project IRR by 2–4%
• Compare lithium-ion (3,000–6,000 cycles) vs. long-duration chemistries for multi-hour shifting, matching technology to 1–8 hour duration needs
• Validate systems against IEEE 1547 and UL 9540, and ensure metering granularity (15-minute or 5-minute intervals) matches utility tariff rules
• Model 10–15 year cash flows, stress-testing tariff changes and degradation (1–3%/year), to target 6–10 year payback and 8–15% IRR

Peak Shaving vs Load Shifting: Energy Storage Strategies

Electricity tariffs for commercial and industrial (C&I) customers are increasingly driven by demand charges and time-of-use (TOU) pricing. In many markets, 30–70% of a facility’s bill is tied to peak kW demand or on-peak energy rates rather than total kWh consumed. As a result, energy storage is now a strategic tool, not just a backup asset.

Two dominant strategies have emerged:

• Peak shaving: reducing the maximum kW drawn from the grid during billing intervals
• Load shifting: moving kWh consumption from expensive periods to cheaper ones using storage

For B2B decision-makers, the challenge is not whether to use storage, but which strategy—or combination—delivers the best return under a specific tariff, load profile, and site constraint. This article breaks down the technical and economic differences between peak shaving and load shifting, and provides a structured approach to design, sizing, and technology selection.

Technical Deep Dive: How Peak Shaving and Load Shifting Work

Understanding Tariff Structures and Load Profiles

Before selecting a strategy, you must understand how you are billed and how you consume power.

Key tariff elements:

• Demand charges: $/kW based on the highest 15–60 minute average demand in a month
• Time-of-use (TOU) energy rates: $/kWh varying by hour, often with 2–4 price blocks per day
• Critical peak pricing (CPP): very high $/kWh during 20–100 hours per year
• Power factor penalties: additional charges if PF falls below 0.9–0.95

Typical load profile characteristics:

• Daily peaks often 20–50% above average load
• Peak duration: sharp 15–60 minute spikes vs. broad 3–6 hour plateaus
• Seasonal variation: summer HVAC peaks, winter heating or process loads

High-resolution interval data (5–15 minutes) over 12–24 months is essential to model both strategies accurately.

Peak Shaving: Controlling Maximum kW

Peak shaving uses a battery energy storage system (BESS) to limit grid demand to a pre-set threshold. When facility load exceeds the threshold, the battery discharges to cover the difference. When load is below the threshold, the battery can recharge (from PV or grid) within defined constraints.

Typical technical parameters:

• Control target: fixed kW cap (e.g., 1,000 kW) or dynamic threshold based on forecast
• Interval basis: 15-minute or 30-minute demand windows, aligned with utility billing
• Battery duration: 0.5–1.0 hours per kW of target reduction for spiky loads; up to 1.5 hours for flatter peaks
• Power rating: battery inverter sized to 10–40% of facility peak demand, depending on desired shaving depth

Example:

• Facility peak: 2,000 kW
• Demand charge: $18/kW-month
• Battery target: shave 400 kW (20%) of peak
• Battery size: 400 kW / 400 kWh (1-hour system)

Annual savings ≈ 400 kW × $18/kW × 12 months = $86,400, ignoring secondary benefits.

Peak Shaving Control Logic

An effective peak shaving EMS (energy management system) typically:

• Monitors real-time load and grid import at 1–5 second sampling, controls at 1–5 minute intervals
• Maintains a state-of-charge (SoC) reserve (e.g., 40–80%) during expected peak windows
• Uses predictive algorithms (e.g., day-ahead forecast, historical patterns) to avoid early depletion
• Coordinates with PV output forecasts to minimize grid import while preserving battery for peak events

Control challenges include:

• False positives: discharging on minor fluctuations, wasting cycles
• Missed peaks: underestimating peak magnitude or timing
• SoC management: ensuring enough energy is available when the actual peak occurs

Load Shifting: Moving kWh Across Time

Load shifting uses storage to buy or generate energy when it is cheap and discharge when it is expensive. This is primarily driven by TOU or dynamic price structures.

Key design factors:

• Price spread: ratio of on-peak to off-peak $/kWh (e.g., 0.08 vs 0.24 $/kWh = 3:1)
• Duration of high-price window: often 2–6 hours per day
• Battery round-trip efficiency (RTE): typically 85–92% for lithium-ion
• Cycle frequency: 200–350 full equivalent cycles per year for daily shifting

Example:

• Off-peak price: $0.08/kWh
• On-peak price: $0.24/kWh
• RTE: 90%

Effective arbitrage margin:

• Buy 1 kWh off-peak at $0.08
• Deliver 0.9 kWh on-peak, valued at 0.9 × $0.24 = $0.216
• Gross margin ≈ $0.216 – $0.08 = $0.136/kWh cycled

Load Shifting Sizing Guidelines

For daily shifting:

• Duration: match or slightly exceed on-peak window, typically 2–4 hours
• Power rating: sized to 10–30% of facility peak load, depending on desired shifted kWh
• Energy capacity: 2–4 kWh per kW of inverter rating

A 1 MW / 3 MWh system can:

• Discharge 1 MW for 3 hours
• Shift up to 3 MWh per day, ≈1,000 MWh per year at 90% utilization

At $0.10/kWh net arbitrage, that is ≈$100,000/year in gross savings before degradation and O&M.

Battery Technology Considerations

For both strategies, lithium-ion (Li-ion) is currently the dominant choice for C&I applications due to energy density, cost, and maturity.

Key specs:

• Cycle life: 3,000–6,000 cycles to 70–80% of initial capacity at 80% depth of discharge (DoD)
• Round-trip efficiency: 85–92% at system level
• C-rate: 0.5–1.0C continuous discharge/charge capability

Technology selection by use case:

• Peak shaving: often benefits from higher C-rate (0.7–1.0C) and shorter duration (0.5–1.0 hours)
• Load shifting: prioritizes energy capacity and cycle life; 0.25–0.5C and 2–4 hours duration

Emerging alternatives (e.g., flow batteries, sodium-based chemistries) may suit multi-hour shifting (4–8 hours) with high cycle counts (>10,000) but currently have higher capex and lower maturity in many markets.

Integration with PV and Smart Infrastructure

Combining PV with storage enhances both strategies:

• PV reduces net load, lowering baseline demand and providing low-cost energy for charging
• Storage smooths PV variability and prevents PV-driven peaks (e.g., sudden cloud cover) from increasing demand charges

Smart infrastructure integration includes:

• Building management systems (BMS/BAS) for HVAC pre-cooling or process scheduling
• EV charging management to avoid stacking EV peaks on facility peaks
• Demand response (DR) participation, layering DR incentives on top of shaving/shifting revenue

Applications and Use Cases

Manufacturing Facilities

Characteristics:

• Large motors, compressors, and process loads
• Short, sharp peaks during equipment startups
• High demand charges ($10–25/kW-month)

Best-fit strategy:

• Primary: peak shaving with 0.5–1.0 hour duration
• Secondary: limited load shifting if TOU spread is significant

Typical outcome:

• 10–25% reduction in monthly peak demand
• Payback in 6–10 years where demand charges exceed $15/kW-month

Cold Storage and Data Centers

Characteristics:

• Relatively flat baseload with superimposed peaks
• High reliability requirements
• Often on complex tariffs with TOU and demand components

Best-fit strategy:

• Hybrid: peak shaving plus daily load shifting
• Use storage to cap peaks and to shift refrigeration or IT loads around TOU windows

Typical outcome:

• 15–30% reduction in combined demand and energy charges
• Additional resilience value if storage supports backup operations

Commercial Buildings and Campuses

Characteristics:

• HVAC-driven afternoon/early evening peaks
• TOU tariffs with strong on-peak premiums
• Often co-located with PV or planning solar deployments

Best-fit strategy:

• Load shifting with 2–4 hour duration to cover on-peak windows
• Peak shaving for extreme hot days or CPP events

Typical outcome:

• 10–25% bill reduction from shifting
• Additional 5–10% from targeted peak shaving on critical days

Microgrids and Behind-the-Meter Aggregations

Characteristics:

• Multiple distributed loads and DERs (PV, gensets, EVs)
• Ability to island from the grid
• Participation in capacity or ancillary service markets

Best-fit strategy:

• Multi-use storage: peak shaving, load shifting, frequency regulation, and backup
• Sophisticated EMS to stack value streams without over-cycling the battery

Typical outcome:

• 3–5 value streams combined, improving IRR by 3–6 percentage points vs single-use projects

Comparison and Selection Guide

Strategic Comparison

Criterion	Peak Shaving	Load Shifting
Primary value driver	Demand charge reduction ($/kW)	TOU arbitrage ($/kWh)
Typical duration	0.5–1.5 hours	2–4 hours (up to 6 hours in some markets)
Cycle frequency	50–200 cycles/year	200–350 cycles/year
Control complexity	High (predicting short peaks)	Moderate (daily schedule)
Best where	Demand charges > $10–15/kW-month	On-/off-peak price ratio > 2:1
Battery stress	High power, moderate energy throughput	Higher cumulative energy throughput
Synergy with PV	Strong for clipping PV-driven peaks	Strong for storing midday PV for evening use

Decision Framework

1. Analyze tariff structure

   • If demand charges account for >40% of the bill, prioritize peak shaving
   • If TOU spread is >$0.08–0.10/kWh, prioritize load shifting

2. Characterize load profile

   • Short, sharp peaks → peak shaving with higher C-rate
   • Long on-peak windows → load shifting with 2–4 hour duration

3. Assess operational flexibility

   • If loads can be rescheduled (e.g., process shifts, pre-cooling), load shifting becomes more attractive
   • If loads are inflexible but predictable, peak shaving is viable with robust forecasting

4. Evaluate battery utilization and lifetime

   • Peak shaving: fewer cycles, longer calendar-driven life; may underutilize asset if not combined with other services
   • Load shifting: more cycles; ensure cycle life (3,000–6,000) aligns with 10–15 year project horizon

5. Model scenarios

   • Base case: peak shaving only
   • Alternative: load shifting only
   • Hybrid: combined strategy with shared battery capacity

Target metrics:

• Payback: 6–10 years
• IRR: 8–15%
• NPV positive under conservative tariff and performance assumptions

Technical and Compliance Considerations

For both strategies, ensure compliance with relevant standards and interconnection rules:

• IEEE 1547-2018 for DER interconnection and interoperability
• UL 9540 / UL 9540A for energy storage system safety and fire testing
• Local grid codes and utility interconnection requirements

Metering and data requirements:

• Interval meters with 5–15 minute resolution
• At least 12 months of historical data; 24 months preferred for robust modeling
• Real-time monitoring to verify performance and support measurement & verification (M&V)

Cybersecurity and integration:

• Secure EMS communication (TLS, VPN) with utility or aggregator if participating in DR or grid services
• Integration with SCADA/BMS via standard protocols (Modbus, BACnet, IEC 61850 where applicable)

FAQ

Q: How do I decide whether peak shaving or load shifting will save more money at my site? A: Start by breaking down your last 12–24 months of bills into demand charges ($/kW) and energy charges ($/kWh). If demand charges represent more than 40–50% of your total bill and your load has sharp 15–60 minute peaks, peak shaving is usually the primary opportunity. If your tariff has a strong TOU spread—on-peak rates at least 2–3 times off-peak—and your load is relatively stable across the day, load shifting often produces higher savings. In many C&I cases, a hybrid strategy using one battery for both functions yields the best economics.

Q: How much battery capacity do I need for effective peak shaving? A: For typical commercial facilities with short-duration peaks, a useful rule of thumb is 0.5–1.0 kWh of storage per kW of desired peak reduction. For example, to shave 500 kW from your monthly peak, you might size a 500 kW / 250–500 kWh system. If your peaks last longer—say 1–2 hours—you may need up to 1.5 hours of duration. A detailed sizing study should use 5–15 minute interval data over at least a year to simulate different thresholds, durations, and SoC strategies.

Q: What kind of storage duration is best for load shifting under TOU tariffs? A: The required duration depends on the length of your high-price window. If your on-peak period is 3 hours, a 3–4 hour battery is typical to cover most of it while allowing for partial discharge. For many C&I customers, 2–4 hour systems strike a good balance between capex and revenue. Shorter systems (6 hours) can be capital-intensive unless price spreads are large or multiple value streams are stacked.

Q: Can one battery system do both peak shaving and load shifting without excessive degradation? A: Yes, a single BESS can be configured for both strategies, but the EMS must carefully manage SoC and cycling to avoid unnecessary degradation. A common approach is to prioritize peak shaving during known peak-risk windows and use remaining capacity for daily load shifting. With modern lithium-ion systems rated for 3,000–6,000 cycles, operating at 200–300 full-equivalent cycles per year for combined services can still support a 10–15 year project life, assuming appropriate temperature control and conservative SoC limits (e.g., 20–80%).

Q: How do demand charges and TOU pricing typically appear on utility bills? A: Demand charges are usually listed as a separate line item, expressed in $/kW, and applied to the highest 15–60 minute average demand in the billing period, sometimes with separate summer and winter rates. TOU pricing appears as different $/kWh rates for on-peak, mid-peak, and off-peak periods, often varying by season and weekday/weekend. Some tariffs also add critical peak pricing or ratchets, where a portion of past peaks sets a minimum billed demand for several months, which can significantly enhance the value of peak shaving.

Q: What are the main risks when implementing peak shaving with batteries? A: The key risks include misestimating peak magnitude or timing, leading to missed savings; under-sizing or over-sizing the battery; and control strategies that either over-discharge early or fail to respond quickly enough. There is also tariff risk if the utility restructures demand charges, and technical risks related to battery degradation, inverter failures, or communication issues. Mitigation involves robust data analysis, conservative design margins, proven EMS algorithms, and clear performance guarantees with your technology provider or integrator.

Q: How does battery degradation affect long-term economics for load shifting? A: For daily shifting, batteries may see 200–350 full-equivalent cycles per year. With typical lithium-ion cycle life of 3,000–6,000 cycles to 70–80% capacity, you can expect 10–15 years of useful life, but effective capacity will gradually decline by 1–3% per year. This reduces the kWh you can shift and thus annual savings. Financial models should include a degradation curve, potential augmentation (adding modules mid-life), and residual value. Projects remain attractive when net arbitrage margins and incentives are sufficient to offset this performance decline.

Q: Are there specific standards or certifications I should require for a C&I battery project? A: Yes. For grid interconnection in North America, compliance with IEEE 1547-2018 is essential. At the system level, UL 9540 and UL 9540A address safety and fire behavior of energy storage systems. For component-level safety, relevant UL and IEC standards cover batteries, inverters, and switchgear. Additionally, some regions require adherence to local building and fire codes, including NFPA 855 for energy storage installations. Ensuring your integrator uses certified components and designs to these standards reduces permitting friction and safety risk.

Q: How do PV plus storage systems enhance peak shaving and load shifting performance? A: PV reduces daytime net load and provides low-cost or zero-marginal-cost energy for charging the battery, which improves the economics of both strategies. For peak shaving, PV can flatten midday peaks, while the battery covers late afternoon or evening peaks when PV output drops. For load shifting, the battery can store surplus midday PV and discharge during evening TOU peaks, effectively increasing self-consumption and reducing grid imports. Properly coordinated controls can increase combined PV+storage value by 20–40% compared to PV-only systems.

Q: What data and tools are needed to accurately model these strategies before investing? A: At minimum, you need 12–24 months of 5–15 minute interval load data and full tariff details, including all demand, energy, and rider charges. Modeling tools may range from utility bill analyzers and spreadsheet models to specialized software that simulates BESS dispatch under different control strategies. Many developers use NREL’s tools and open-source models as a starting point, then refine with proprietary EMS algorithms. Sensitivity analyses on tariff changes, degradation rates, and capex/opex assumptions are critical to de-risk the investment.

Q: When does it make sense to consider long-duration storage instead of conventional lithium-ion? A: Long-duration technologies (e.g., flow batteries, some sodium or iron-based systems) become attractive when your primary value comes from sustained multi-hour shifting (4–8+ hours) or when you anticipate very high cycle counts (>5,000–10,000) over project life. They can offer lower degradation and easier augmentation but may have higher upfront costs and less mature supply chains. For most current C&I applications with 0.5–4 hour needs, lithium-ion remains the default choice, but long-duration options are worth evaluating in markets with extreme TOU spreads or capacity remuneration.

References

1. NREL (2023): "Energy Storage Technology and Cost Characterization Report" – performance and cost benchmarks for grid-connected storage across durations.
2. NREL (2022): "Time-of-Use Rates: A Guide to Designing and Implementing TOU Tariffs" – analysis of TOU structures and customer impacts.
3. IEEE 1547-2018 (2018): "Standard for Interconnection and Interoperability of Distributed Energy Resources with Associated Electric Power Systems Interfaces" – technical requirements for DER interconnection.
4. UL 9540 (2020): "Standard for Energy Storage Systems and Equipment" – safety requirements for grid-connected and standalone energy storage systems.
5. IEA (2023): "Electricity Market Report 2023" – global trends in electricity pricing, flexibility needs, and storage deployment.
6. IRENA (2022): "Electricity Storage and Renewables: Costs and Markets" – global review of storage technologies, costs, and use cases.
7. NREL (2021): "Commercial and Industrial Customer-Lited Energy Storage Systems" – case studies on peak demand reduction and TOU arbitrage in C&I sectors.

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About SOLARTODO

SOLARTODO is a global integrated solution provider specializing in solar power generation systems, energy-storage products, smart street-lighting and solar street-lighting, intelligent security & IoT linkage systems, power transmission towers, telecom communication towers, and smart-agriculture solutions for worldwide B2B customers.