The load factor takes into account how much electricity was used during a billing period compared to how much electricity could have been used based on the peak demand. This can have a major impact on the price a customer pays for electricity. Energy suppliers will use a formula to determine a customer’s load factor. In some cases, if it falls below 30 percent, then an energy supplier may refuse pricing.
Load Factor Formula
A customer can determine their load factor by looking at the electric bill. The electric bill will include how many kilowatt-hours (kWh) the customer consumed during the billing period along with the peak demand (KW). Take the number of kWh and divide it by the peak demand (KW) multiplied by the number of hours during the billing period.
Here is the formula:
Kilowatt-hours consumed/(Peak demand x 30 days x 24 hours)
For example, let’s say during a billing period a customer consumes 20,000 kWh and has a peak demand of 70 KW. To determine the load factor, we can use the formula:
20,000 kWh/(70 KW x 30 days x 24 hours) = 39.68 percent load factor
If we round up, this customer will have a 40 percent load factor.
How Load Factor Affects Electricity Rates
If you’re shopping for electric rates, then knowing how the load factor affects the price you pay for electricity can help you take steps to save money. For example, two customers using the same number of kilowatt-hours during a billing period can be paying two very different rates. The difference between these two rates can be boiled down to the customer’s peak demand. The higher the peak demand with kilowatt-hours consumed, the higher the price will be the customer pays for electricity.
Taking steps to lower your monthly peak demand can have major benefits on the amount you pay for electricity. You can lower the monthly peak demand without having to sacrifice the amount of electricity consumed during the billing period.
A Lower Peak Demand Will Lead to Higher Energy Savings
Taking steps to lower your demand will lower the KW on the electric bill and may significantly improve the load factor. The electric bill from the utility company may contain a chart showing monthly demand patterns. Analyzing this chart will help determine factors that may have lead to higher demands. For example, maybe the company received a new machine, or perhaps there was a day the weather was unusually warm, and the A/C was running full blast. One day of high demand in a 30-month billing cycle can be costly.
To lower demand think about trying to spread the energy usage amount equally throughout the billing period. For example, if usage is high at the beginning of the period and drops off toward the end, then figure out the factors that lead to this. If you can cut down the high usage at the beginning of the period and spread it throughout the billing cycle, then you may significantly improve the load factor which will lead to a much lower electric rate!