4CP: three small characters that have a dramatic impact on yearly energy cost. If you’re in the business of electrical supply and distribution, chances are you’re very familiar with 4CP demand, or Four Coincidental Peak demand. Our team has spent a lot of time looking at 4CP and the impact it has on our clients’ bottom line. After all, an important part of our process at Perceptive Power Infrastructure is to understand our clients’ energy bill and loads.
By understanding peak demand, we can create individual solutions using distributed generation that ultimately lower market energy usage during these windows. This can be a game changer in places like Texas, where certain yearly charges are calculated based on 4CP demand during four 15-minute windows each summer. If done correctly, the savings could be huge.
What is 4CP and why does it matter?
We know that 4CP can sometimes be a bit hard to understand. For those that are new to the concept, here’s a brief overview of how it works. The calculation of 4CP demand varies depending on the region and the market involved. However, in general, 4CP is calculated based on the highest demand for electricity on the grid during four periods of the year, usually in the summer. The exact length of the period can also vary, but generally it doesn’t exceed one hour.
The capabilities of regional grids are defined by these peak load events, even if they only occur rarely. During these times, peaker power plants can be turned on to supplement the electricity being created by base load plants. Generally, peaker plants are oil or natural gas-fired, and so starting them up can be very expensive. For that reason, higher rates per kw/hr are charged during 4CP and “Near-CP” times.
Texas specifically has a unique relationship with 4CP. Like the rest of the world, both population and power demand in Texas are steadily increasing while weather patterns continue to shift. The fact that Texas has brutally hot summers is no secret.
In Texas, ERCOT uses 4CP demand to calculate tariffs which they charge to transmission distribution utilities (TDUs). The TDUs then in turn pass these charges on to the retail electric providers in the form of “Transmission Cost Recovery Factors.”
The way this charge is calculated is as follows: for each month in June, July, August and September they take the highest 15-minute periods of market demand at a facility. Then, they average the usage during those periods. To determine the yearly 4CP pricing, they multiply the usage by the kw rate set by Public Utility Commission of Texas (PUCT). This is further multiplied by 12 months.
It’s worth noting that this tariff is used by TDUs to finance transmission line updates and projects. While it’s important to update the transmission infrastructure, these charges can quickly add up, especially as the kw rate increases alongside summer demand.
As an example, let’s use the a fictitious Electric Cooperative:
4CP demand 2022
The average 4CP demand for these four months is 5 MW. Assuming that the kw price is $6/kw, then the monthly price will be $30,000. This produces a yearly Transmission Cost Recovery Factors charge of $360,000.
Predicting peak electric demand
If electrical distributors can predict peak demand, then they can try to get ahead of it. Thankfully, they have a variety of tools at their disposal to predict 4CP demand. The methods used can vary depending on the region, but some of the common techniques include:
- Historical data analysis
- Weather forecasting
- Load forecasting
- Advanced metering infrastructure
By combining these methods, electrical companies can make informed predictions about when 4CP demand is likely to occur, which can help them to better manage their electricity supply and pricing strategies.
Load shifting vs. Peak shaving
Once the potential 4CP hours have been identified, electrical companies can use this information to try to anticipate and lessen demand. Most companies use a combination of approaches to achieve this. These approaches usually fall under one of two categories: load shifting or peak shaving.
Load shifting techniques involve strategies that move consumption away from these peak periods, though overall consumption will stay the same. As one example, many energy suppliers have notification systems in place to alert customers of upcoming 4CP events. If the customers reduce their usage during this time, the suppliers may offer special time-of-use-rates and incentives. Some suppliers have seen success in remotely switching off their customers’ hot water heaters or air conditioners during peak demand times.
In the long run though, load shifting techniques are effective, but they’re not always reliable. Most of the time they rely on consumers to temporarily change their electricity use habits. By contrast, peak shaving involves temporary reduction in market energy usage which also translates to overall reduced usage. One of the fastest growing methods of this is the use of distributed generation technologies to reduce overall market energy consumption. However, each distributed solution is going to offer a different series of benefits and often at a different time of the day..
What about solar?
Solar has long been touted as one option for levelling out 4CP grid demand. Summer does offer the most daylight hours and thus the peak of solar production. In Texas that equates to an average of 5.49 production hours per day. In fact, in July 2022 ERCOT reported that solar energy accounted for 9,639 MW of the 79,000 MW of peak demand. That’s roughly 12 percent.
Indeed, if 4CP demand occurs during peak solar hours, electricity demand on the grid will be decreased. However, what happens when peak demand occurs after 5:00 PM? As the sun goes down and people return home from work, demand inevitably rises. In situations like this, a combination of solar and battery storage can be effective. However, these aren’t the only distributed generation solutions available.
RICE: When solar isn’t enough
4CP demand, even with the best forecasting systems, is still impossible to predict down to the minute. That’s why it’s necessary to have solutions which can be implemented quickly, at any time of the day and have good part-load availability. If they have relatively low O&M costs and reduced emissions, then that’s even better.
The technology in question here is gas-powered reciprocating internal combustion engine (RICE) units. They can be deployed quickly, even in black-start scenarios to allow for adjustments as demands shift. Modern RICE units are capable of producing up to 19 MW each. When peak load is predicted, a viable complement to solar and energy storage could be to start up the RICE units and let them run for a couple of hours.
Yes, they do burn natural gas, which has traditionally been one of the most expensive fuels in the market. There will inevitably be times, especially in the summers, when generating energy with a RICE unit might be more expensive than with solar, but it will still be less than the market cost. Additionally, in markets like ERCOT, with 4CP-dependent tariffs, the yearly savings would be huge.
A perceptive solution to 4CP
From our point of view, the right solution involves creating a microgrid of sorts. In markets like Texas, this would likely involve PV solar and RICE units. This equipment can be owned and operated by the electric companies directly or we can own, maintain and operate it for them for a fee.
Ultimately though, the right solution to reducing peak demand will vary. At Perceptive Power Infrastructure, we evaluate our partners’ specific needs and expectations. Once we understand their power supply portfolio, loads, current supplier agreements and the community they serve, then we offer tailor-made solutions. We call this the Perceptive Way. This approach is at the center of everything we do.
Our Head of Origination, Gary Hurse, managed a rural electric cooperative (REC) serving members in Texas and New Mexico. He understands the challenges of managing 4CP demand from an REC perspective. Our co-founder Scott Tampke, started Perceptive Power Infrastructure after working as Director of Renewable Energy Business Development at Black & Veatch. Scott has a lot of knowledge and expertise in combining distributed technologies, especially natural gas-powered reciprocating engines.
Together, Gary and Scott want to help America’s energy distributors address the growing issue of 4CP demand. If you’re looking for a solution to minimize 4CP demand costs, we’d love to hear from you.