Heat Pumps and Demand Charges: What Electrifying Heat Does to a Commercial Bill

Most heating in commercial buildings has historically been delivered by fuel on a separate meter. The EIA's Commercial Buildings Energy Consumption Survey is the reference for how commercial floor space is heated and with what, and it shows how much of that heating load has been sitting outside the electric bill. Electrification moves it inside. The energy arithmetic of heat pumps is usually favorable. The demand arithmetic is a separate calculation, and it is the one that tends to be skipped.

What actually changes on the bill

A gas-heated building usually has its electric peak in summer, when cooling runs in the afternoon. After a switch to heat pumps, three things happen on the electric bill:

• Winter kWh rise, because heating energy now arrives as electricity.
• Winter kW rise, because the heating equipment runs hardest at the same moment every cold morning.
• The annual peak can move to winter, if the heating peak exceeds the cooling peak — and then a ratchet or an annual maximum clause can carry it into months when no heating is running.

Meanwhile the gas bill shrinks or disappears. The project's business case has to net all of these, month by month, not just total kWh against total therms.

Why the peak arrives in the morning

Three effects coincide in the first hours of a winter working day.

Recovery. A building set back overnight has to be brought back to occupied temperature before people arrive. That recovery load is concentrated into an hour or two.

Cold. The early morning is usually the coldest part of the day, so the heat loss the system is fighting is at its largest.

Lower efficiency. A heat pump moves heat from outdoors to indoors. ENERGY STAR describes a heat pump as able to deliver up to three times more heat energy than the electrical energy it consumes, but that ratio falls as the outdoor air gets colder: there is less heat to collect and more work to lift it. The NREL work presented at DOE's Building Technologies Office peer review makes the point directly for commercial heating — peak heating demand falls in the early morning, when heat pump efficiency is lowest.

The demand interval does not care about the daily average. It reads the worst fifteen minutes — see the 15-minute demand interval — and in a heat pump building that is very often the first cold-morning recovery of the month.

Estimating the winter peak before you build

You do not need a full energy model to get an order-of-magnitude answer. You need the design heating load at your coldest typical morning, the heat pump's efficiency at that temperature from the manufacturer's data, and any backup heat that can engage.

Add that heating-related demand to the base electric load already present at that hour — lighting, plug load, any process load — and compare the sum with the summer peak on last year's bills. If it is higher, the annual peak is moving to winter, and the ratchet clause on your schedule, if there is one, becomes the next thing to read.

Backup heat is where projects go wrong

Electric resistance heat converts one kWh of electricity into one kWh of heat. A heat pump at a coefficient of performance of 2.0 delivers two. So a kilowatt of resistance strip adds roughly twice the demand per unit of heat that the heat pump does at that temperature — and more at milder temperatures, where the heat pump is more efficient.

Resistance backup is common, because it is cheap to install and covers defrost cycles and the coldest days. The problem is not that it exists; it is when it runs. If controls allow the strips to engage whenever the space is below setpoint, they will engage during morning recovery, when every zone is below setpoint at once.

Storage and hybrid options

Where the winter peak is large relative to the summer peak, two design choices reduce it at source.

Thermal storage. The NREL project presented at DOE's peer review pairs ice storage with heat pumps for commercial hydronic heating, precisely to cut the early-morning peak. The general principle — make or store thermal energy outside the costly interval and draw it down during it — is the same as for cooling, covered in thermal energy storage.

Hybrid or dual-fuel systems. Keeping a fuel-fired source for the coldest hours caps the electric peak at the heat pump's own draw. It also keeps a gas account and its fixed charges, so the comparison has to include both bills. ENERGY STAR notes that dual-fuel systems allow heating with either the heat pump or a conventional furnace.

Putting it in the business case

A complete case compares, month by month, the gas bill avoided with the electric bill added — energy and demand separately — plus any change in the rate schedule the site qualifies for. The avoided cost per kW method on this site works in reverse here: the same arithmetic prices each kilowatt of new winter demand.

ACEEE's research on electrification and peaks is a useful reminder that this is not only a building-level effect: as heating electrifies, more regions see their peaks shift toward winter, and tariffs tend to follow the system's costs over time. Read the seasonal provisions of your schedule before assuming the winter demand rate will stay where it is.

Where to start

Pull last winter's gas bills and last year's electric interval data. Estimate the heating-related demand at your coldest typical morning using the method above, add it to the base load at that hour, and compare the result with your summer peak. If the winter number is higher, design the controls before you sign the equipment order, not after the first bill.