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What Do They Mean By Demand And Energy?

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At Direct Energy Business it's our goal to make things simple, friendly and direct. In an effort to do just that, we hope you'll find this blog post informational and useful. Today's topic addresses demand and energy. Below you'll find the definitions of each and how they're measured. We've also created this infographic to help you understand the differences. 


In the electricity industry, analysts primarily use two units of measure: demand and energyDemand represents a customer’s rate of use.  Think of a speedometer when studying demand.  As you travel to the office, the speedometer shows your rate of speed at a specific point in time.  For example, you may get on the highway and begin travelling at 60 mph, and then speed up to 70 mph.  In this case, your maximum rate of speed is 70 mph, not 130 mph.  For electricity, demand is measured in watts.   A customer’s maximum demand for July and August may be 100 kilowatts and 150 kilowatts, respectively.  Like the mph example, the customer’s annual peak demand would not equal the sum of the two but rather the maximum value (e.g., 150 kilowatts).  Energy represents rate of use over time.  Think of the odometer when studying energy.  In the prior example, you may have traveled 60 mph for 30 minutes and 70 mph for 30 minutes.  In this case you traveled 65 miles.  Likewise, if you turn on 100-watt bulb for ten hours, then you use 1,000 watt-hours or 1 kilowatt-hour (1 kWh).  Unlike demand, energy values are additive, so a customer’s annual kWh would be the sum of each month’s energy usage.


Recall the prior example where a 100-watt bulb is left on for 10 hours.  Here the customer uses 1,000 watt-hours (e.g., 100 watts times 10 hours).  To avoid using a lot of zeros, power companies substitute prefixes for numbers.  Kilo, a common prefix, translates to 1,000.  For the light-bulb example, we would say that that customer uses 1 KWh, not 1,000 watt-hours.  Other common prefixes, mega, giga, and terra, are Greek words for great, giant, and monster, respectively.  Over time, these prefixes have also become units of measurement for 1 million (mega), 1 billion (giga), and 1 trillion (terra).  Kilo and mega are two prefixes commonly used at the office.  Converting from KWh to MWh is a matter of dividing or multiplying by 1,000.  To convert kilowatt hours to megawatt hours, simply divide kilowatt hours by 1,000.  To convert megawatt hours to kilowatt hours, simply multiply megawatt hours by 1,000.  The same rules apply to demand values.


Energy is measured as the product of time and watts.  If you graphed the two variables, watts on the y-axis and hours on the x-axis, then energy is the area under the plotted curve.  In other words, energy (“area”) equals watts (“length”) times hours (“width”).  In comparison, demand is any point along the plotted curve, and is measured with respect to a time interval.  For example, if a customer uses 100 KWh over a fifteen-minute interval, then the customer’s demand is 400 kW (e.g., 100 KWh/0.25 h = 400 KW).  Common time intervals used to measure demand are 15 minutes, 30 minutes, and one hour.  Finally, a customer’s demand is always stated relative to a specified maximum.  For instance, a customer’s maximum demand, independent of any other customer, is known as non-coincident peak (NCP) demand.  Conversely, a customer’s demand that contributes to a system peak (e.g., ISO or EDC) is known as coincident peak (CP) demand.  By definition, CP demand is always less than or equal to NCP demand.

 Jeff Rudolph is Director, North American Portfolio Analytics.  Jeff has worked 31 years in the electric power industry, 15 years in the electric utility sector, and 16 years in the retail energy sector.  Jeff completed undergraduate studies at The Ohio State University, and graduate studies at The University of Southern California and The University of Arizona.

Posted: April 23, 2015