Off Peak Electric Heating

Topics: Design

Jahnavi Sajip
Author : Jahnavi Sajip on September 19, 2017

Water and space heating represent a significant portion of energy consumption in New York City.The main energy sources used to provide heat in NYC buildings are steam, fuel oil #2, natural gas and electricity. Since Con Edison energy rates are among the highest in the nation, electric heating tends to be the most expensive option of the four. However, some rate schedules offer low electricity prices during off-peak hours, and you can take advantage of them to reduce the running cost of electric heating devices.


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To get an idea of how heating costs can be reduced with off-peak electricity, consider the electricity prices charged by Con Edison to residential customers that are subject to time-of-day rates (SC-1 Rate III):

  • Summer Peak Rate (June – September) = 20.53 cents/kWh
  • Winter Peak Rate (October – May) = 7.60 cents/kWh
  • Off-Peak Rate = 1.45 cents/kWh

With this tariff, peak rates apply from 8 AM until midnight, and off-peak rates apply for all other hours. By moving loads away peak demand hours, it is possible to achieve significant power bill savings. For example, moving 1000 kWh of consumption away from peak demand hours yields the following savings:

  • Summer Savings = (1000 kWh) (0.2053 USD/kWh – 0.0145 USD/kWh) = $190.80
  • Winter Savings = (1000 kWh) (0.0760 USD/kWh – 0.0145 USD/kWh) = $61.50

Note that total energy consumption stays the same in both cases; loads are simply being moved to hours when Con Edison charges lower electricity rates.

Savings Achieved with Off-Peak Electric Heating

This section will provide an example of how off-peak electric heating reduces energy costs, even if total energy consumption stays the same. For comparison purposes, consider the following water heaters:

  • Tankless gas heater, EF = 0.95
  • Electric resistance storage heater, EF = 0.93
  • Heat pump storage heater, EF = 2.0

Electric tankless heaters are not considered in this analysis because they are unable to store hot water, which is necessary to benefit from off-peak electricity rates. For this example, the cost of providing 1 million BTU of heating output will be calculated and compared with the three heater options presented above. The US Department of Energy provides a convenient formula to estimate energy consumption based on the heating output and energy factor (EF):

Energy Consumption= (Heating Output)/(Energy Factor)

Keep in mind that unit conversions may be required. For example, heating output is expressed in BTU or therm, and electricity consumption is measured in kilowatt-hours.

Tankless Gas Heater Operating Cost

In most cases, gas heaters are much less expensive to run than electric resistance heaters. This applies even for low-efficiency gas heaters, given that the low price of gas relative to electricity offsets the efficiency disadvantage. In locations where electricity prices are high, such as the states in the New England region, gas heaters can outclass even the most efficient heat pumps in terms of operating cost.

The cost of providing 1 million BTU with the gas heater is calculated first to provide a baseline against which the other options can be compared, based on the Con Edison gas price of 105.07 cents/therm:

Energy Consumption=(1,000,000 BTU)/0.95 x (1 therm)/(100,000 BTU)=10.5263 therm

Energy Cost = 10.5263 therm x 1.0507 USD/therm = $11.06

With a conventional storage-based gas heater, this cost would be increased given that the energy factor is lower. If the procedure above is repeated with a storage gas heater, the cost is increased to $15.68, which is over 40% more.

Resistance Heater Operating Cost

The running cost of the electric resistance heater varies drastically depending on the applicable electricity rate, and there are three possibilities. The first step is to calculate the energy consumption, and the operating cost is then calculated for all three electricity prices:

Energy Consumption=(1,000,000 BTU)/0.93 x (1 kWh)/(3412.14 BTU)=315.13 kWh

Energy Cost (Peak, Winter) = 315.13 kWh x 0.0760 USD/kWh = $23.95

Energy Cost (Peak, Summer) = 315.13 kWh x 0.2053 USD/kWh = $64.70

Energy Cost (Off-Peak) = 315.13 kWh x 0.0145 USD/kWh = $4.57

The savings available with off-peak electric heating are evident here. The peak electricity rates billed during the winter make resistance heating twice as expensive as gas heating, and with summer peak rates it becomes almost six times more expensive. However, resistance heating is 60% less expensive than gas heating when off-peak electricity is used.

Heat Pump Running Cost

A heat pump is comparable to a resistance heater in that both units consume electricity and provide heat. However, the heat pump provides a much higher efficiency because it runs with an inverse refrigeration cycle, and this is reflected by its reduced operating costs:

Energy Consumption=(1,000,000 BTU)/2.0 x (1 kWh)/(3412.14 BTU)=146.54 kWh

Energy Cost (Winter Peak) = 146.54 kWh x 0.0760 USD/kWh = $11.13

Energy Cost (Summer Peak) = 146.54 kWh x 0.2053 USD/kWh = $30.08

Energy Cost (Off-Peak) = 146.54 kWh x 0.0145 USD/kWh = $2.12

The heat pump and the gas heater have approximately the same running cost with winter peak rates, and the heat pump is 80% less expensive to operate than the gas heater when off-peak electricity is used. In the summer, the high price of electricity during peak demand hours offsets the efficiency advantage of the heat pump.

Off-Peak Heating in Buildings Subject to Demand Charges

Buildings whose power demand exceeds 10 kilowatts are classified as large consumers by Con Edison and are subject to the SC-9 rate. Under this tariff, the kilowatt-hour price is fixed for all months and hours, but there is a demand charge. This charge is calculated based on the highest peak in consumption measured during the month, so a viable energy saving strategy is avoiding the simultaneous use of high-power appliances.

Under the basic SC-9 rate, Con Edison customers with a low-tension service pay 23.24 USD per kilowatt of maximum demand during the summer (June-September), and 18.36 USD/kW during the winter. The energy rate is 2.21 cents per kWh, and it applies for all hours.

If off-peak heating is deployed in this case, the savings are directly determined by the kilowatts of demand subtracted from the maximum monthly value. For example, eliminating 10 kW of peak demand would yield the following savings:

  • $232.40 USD/month during the summer.
  • $183.60 USD/month during the winter.

In buildings that use gas or fuel oil for heating, the cost of off-peak electric heating is calculated based on the fixed energy rate of 2.21 cents/kWh. The demand cost is zero because, by definition, off-peak heating occurs away from peak demand hours.

Do Utility Companies Benefit from Off-Peak Electric Heating?

At a glance, it might seem that off-peak heating is detrimental for utility companies, since they are charging less for each kilowatt-hour. However, the reality is that shifting loads to off-peak hours provides a wide range of benefits to utilities as well:

  • The power grid is decongested, which greatly reduces transmission losses during off-peak hours. Keep in mind that losses are proportional to current squared – if a power line reduces its current by 50%, losses are reduced to 25%.
  • Alleviating the load on the power grid also means the utility company can wait longer before capacity upgrades are required. The capital cost of these upgrades is significant!
  • Power plants that operate during peak demand hours are the most expensive to operate, and utilities can rely less on them if loads are being moved to hours when the grid is decongested.

In fact, the low off-peak rates can be considered a type of incentive offered by utilities companies. They reward customers who move consumption away from peak demand hours with cheap electricity.

Concluding Remarks

If you are considering off-peak electric heating, the best recommendation we can give is that you get an assessment by an engineering firm or a consultant. They can determine if off-peak heating makes sense for you from the economic standpoint, and can also carry out a cost-benefit analysis of the upgrade if you are currently using another heat source.

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