Lesson 2 – On-Peak, Off-Peak, and Demand Charges: A Simple Dubai-Based Example
Lesson Purpose
This lesson explains how electricity tariffs work in practice and why, in Dubai, peak demand often costs more than total energy consumption.
Instead of theory, this lesson uses a simple numerical example to show how cooling systems drive demand charges — and why TES directly targets this issue.
Energy Cost vs Demand Cost (Simple Definitions)
In most large commercial projects in Dubai, the electricity bill has two main components:
- Energy Charge (kWh)
- What you pay for the total energy consumed
- Accumulates over the month
- Demand Charge (kW)
- What you pay for the highest electrical load
- Based on the maximum demand recorded during a short interval (typically 30 minutes)
Both are important — but they behave very differently.
A Simple Dubai Cooling Scenario
Let us consider a mid-size commercial building in Dubai:
- Peak cooling load: 1,000 TR
- Chiller plant electrical demand at peak: 700 kW
- Average daily cooling operation: 12 hours
- Peak load duration: 3 hours per day
- Remaining 9 hours operate at partial load
This is a very typical load profile in Dubai.
Energy Consumption (kWh)
If the plant operates:
- 3 hours at 700 kW
- 9 hours at an average of 400 kW
Daily energy consumption:
- Peak period:
700 kW × 3 h = 2,100 kWh - Remaining period:
400 kW × 9 h = 3,600 kWh
Total daily energy = 5,700 kWh
Over a 30-day month:
- Total energy ≈ 171,000 kWh
This number looks reasonable and manageable.
Demand Charge Reality
Now comes the critical part.
The utility does not care that the building only draws 700 kW for 3 hours.
What matters is: The maximum demand recorded, even if it happens once.
So the demand charge is based on:
- 700 kW, not the average load
This single number defines a large portion of the monthly bill.
Why Engineers Get Surprised
From an engineering perspective:
- The system is efficient
- The peak duration is short
- Annual energy looks acceptable
From the utility perspective:
- The grid must be sized to deliver 700 kW
- Infrastructure must be ready for that peak every day
The utility charges for capacity availability, not operating time.
Why Efficiency Alone Does Not Fix This
Now assume we improve chiller efficiency by 10%.
- Peak demand drops from 700 kW → 630 kW
This is good — but:
- The peak still exists
- The demand charge is still triggered
- The building is still sized for high peak capacity
Efficiency helps energy cost, but only partially helps demand cost.
How TES Changes the Same Example
Now assume we introduce TES and shift part of the cooling load:
- Chillers operate mainly at night (off-peak)
- During the day:
- Chiller demand reduced to 400 kW
- Remaining cooling supplied from storage
New situation:
- Maximum demand = 400 kW
- Peak demand reduction = 300 kW
This reduction applies to:
- Every billing cycle
- Every peak month
- Without changing occupant comfort
The Key Insight
TES does not reduce cooling demand.
TES:
- Changes when electricity is consumed
- Reduces the maximum electrical footprint of the building
This is why TES is fundamentally a demand-management tool, not an efficiency upgrade.
Why This Matters in Dubai
In Dubai:
- Cooling dominates electrical demand
- Peak tariffs penalize short-duration spikes
- Large buildings pay for capacity more than energy
TES aligns the building’s cooling behavior with how electricity is priced.
Key Takeaways from This Lesson
- Energy cost (kWh) and demand cost (kW) behave differently
- Short peak periods can define monthly electricity bills
- Efficient equipment alone does not eliminate demand charges
- TES reduces cost by lowering maximum demand
- The value of TES comes from time shifting, not energy reduction
Important Reflection
Ask yourself this:
If the same building consumed the same monthly kWh, but never exceeded 400 kW,
how different would the electricity bill look?
This question explains the economic logic behind TES.