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Did you know that knowing your business’s electrical load factor can help you negotiate lower energy prices? Understanding your unique load factor can unlock unique business energy plans with lower rates. It can also help you improve the operational efficiency of your company! 

What is Load Factor? 

A business’s electrical load factor is a measure of how consistently a business uses electricity over a billing period. It compares the average electricity usage to the maximum possible usage. A higher load factor means the business is using electricity more steadily and efficiently. Conversely, a lower load factor indicates more variation in usage, with peaks and valleys.  

Why is Load Factor Important?

Electrical load factor helps businesses and energy providers understand and manage overall energy efficiency and performance. It’s one of the key factors in determining commercial energy rates. Energy suppliers will typically offer lower rates to businesses with a higher load factor because their consumption is more consistent. Furthermore, improving a business’s load factor also improves the efficiency of business operations. As a commercial energy customer, understanding your unique load factor can help you secure much more competitive rates and contract terms. 

How do I Calculate Load Factor?

To calculate your load factor, you’ll need to have a copy of your recent energy bill available. Calculating load factor is the ratio of your highest actual kilowatt demand (kW) to the maximum theoretical kilowatt-hour (kWh) use if your demand remains consistent for a billing period. First, look for your actual energy use in kWh on your bill. Then, you’ll need to find your electricity demand in kW, also called “peak load” on your bill. Once you have those to figures, you can input them in the following load factor formula:  

Monthly kWh / (monthly peak KW Demand * days in billing period * 24 hours) 

For example, your electric bill indicates you used 50,000 kWh of use with a peak demand of 100 kW. To determine load factor, you would divide the actual use (50,000) by the theoretical maximum use, which is the product of demand (100 kW), days in your billing period (30), and 24 hours. The formula reduces to 50,000/72,000 or 0.694. When converted into a percentage, that creates a load factor of 69%.    

What’s a Typical Load Factor? 

The average small-to-medium-sized business with a standard daytime schedule is around 40-60%. This is a typical range for offices, restaurants, schools and other general use commercial buildings. However, your unique load factor will vary based on your chosen industry, physical location, and the efficiency of business operations. Additionally, load factor can fluctuate considerably for property management companies that oversee a variety of buildings with fluctuating occupancy.  

Exploring How Two Similar Businesses Can Have Different Load Factors

The example businesses below will likely receive the same capacity costs from an energy supplier since their demand is equivalent. Using the formula previously provided, we’ll explore how these example businesses have differing load factors. 

Hotel #1 

100 kW of demand 

35,000 kWh of usage 

Load Factor: 48% 

Hotel #2

100 kW of demand 

55,000 kWh of usage 

Load Factor: 76% 

What could cause two nearly identical hotels to have different load factors?

In the hospitality sector, it could be related to guest occupancy levels or the number of special events each hotel hosts. A regularly booked hotel would likely have a higher load factor since the guest rooms are consuming power more consistently. Alternatively, if hotel #1 hosted two weddings in a billing period but was otherwise not booked to capacity, it might have a lower load factor. For Hotel #1, the lower load factor indicates that power is not being used consistently. 

What if my Load Factor is Close to 100%?

There are a few specific circumstances in which a business has a very high load factor – close to 100%. A high load factor indicates that a business has a very steady electrical load. Essentially, the energy demand stays relatively consistent throughout the billing period, with minimal setbacks. This is common in businesses with round-the-clock operations. 

Businesses That Typically Have a High Load Factor

High load factor is common in businesses like data centers, refrigerated warehouses, hospitals and 24-hour supermarkets. These business types and industries have much higher load factors because their operations or equipment are always running.  

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If you discover your business’s load factor is above 80%, reach out to your energy supplier or commercial energy broker to see if you qualify for lower rates!

Are There Any Benefits to a High Load Factor?

If your business has a high load factor, you can be eligible for unique benefits like lower energy rates and more favorable contract terms. Businesses with a high load factor might qualify for specialty energy rates that reward their consistent usage.  

Utility companies and energy suppliers value customers with a high load factor because their monthly energy usage is very consistent. It’s much easier for these entities to generate and distribute power when they know exactly how much is expected to be consumed.  

What if My Load factor is Over 100%?

A load factor over 100% means that the actual energy usage was higher than the maximum theoretical demand for that meter, which is impossible. If your calculated load factor is over 100%, it indicates a data or meter problem that needs to be resolved. Always investigate and contact your local utility if you discover a load factor reading that exceeds 100%. 

What is My Load Factor is Extremely Low?

If you calculate your load factor and it’s below 20%, it indicates that your business has very volatile energy usage. Essentially, significant energy demand (kW) is being generated, but only for a short period of time before tapering off. If your energy bill includes an energy usage graph for the billing period, it will likely look “spiky” with many peaks and valleys.  

For some businesses, this is expected, but for others it could indicate inefficiencies or faulty equipment. Inconsistent energy loads are not normal for most businesses. It can indicate a data problem, billing problems, or a faulty meter. If you receive a bill with an unexpectedly low load factor, contact your local utility to schedule an equipment inspection. 

Businesses That Typically Have a Lower Load Factor

There aren’t very many types of businesses that have a low load factor, but they do exist. Examples of low load factor businesses could include outdoor athletic fields, concert venues, or a construction site. In each of these examples, each facility’s equipment operates in high gear for a limited time.  

Another example could be a restaurant specializing in dinner service. While there is preparation work going on in the kitchen during the day, their energy demand won’t peak until dinner rush. During those few hours, the restaurant reaches its peak demand. As the dinner rush subsides, their energy demand lowers significantly. In this example, the dinner rush contributes to peak demand while opening the restaurant, prep work, and closing the restaurant have a distinctly lower kWh usage. 

Person holding utility bill

How can my Business Improve its Load Factor?

Improving your business’s load factor not only improves the efficiency of general business operations, but it can also qualify you for specialty energy rates. Remember, the load factor is the correlation of your peak energy demand with actual energy usage, so prioritizing efficiency is a must. If you want to improve your load factor, there are a few successful methods: 

Focus on Consistent Energy Usage

Using energy more consistently throughout your day will help improve load factor. For example, if a business typically uses larger equipment in the mornings, staggering equipment use throughout the day can create more consistent usage patterns. 

Reduce Your Peak Demand

Another option to improve your load factor is to reduce your business’s peak demands. Finding ways to reduce your peak demand, especially during your supplier’s peak hours, can make a major difference. Finding ways to reduce energy usage or demand during these periods greatly improves your load factor and fosters operational efficiency. There are several ways to reduce your peak demand: 

What is Power Factor and How is it Different?

Power factor is a measure of how effectively electrical power is being used by a business. It is the ratio of real power (what’s used to do work) to apparent power (total power supplied to a circuit.) A power factor close to 1 means most of the electricity supplied is being used effectively. Alternatively, a low power factor indicates inefficiencies, or more power being wasted. 

While both power factor and load factor measure energy efficiency, they focus on different factors. Power factor focuses on how effectively electrical power is used at any given moment for a specific circuit. Load factor deals with how consistently a business consumes energy over time.  

How can I Calculate Power factor?

To calculate your power factor, you will need a power quality analyzer that measures both working power (kW) and apparent power, measured in kilovolt amperes (kVA). You’ll use your power quality analyzer to gather your kW and kVA figures before plugging them into the power factor formula:  

Power Factor = True Power (kW) / Apparent Power (kVA) 

How do Power Factor and Load Factor Relate to Business Operations?

A business can simultaneously have a high load factor but a low power factor. For example, a manufacturing plant likely has a high load factor with all departments requiring a consistent flow of power. However, the same manufacturing plant can also have a low power factor if they use specific machinery inconsistently throughout the day. 

Gain a Competitive Edge By Understanding Your Load Factor 

Calculating your business’s load factor empowers you to become a more proactive energy consumer. Once you understand how consistently your company uses energy, you have the power to negotiate lower rates and qualify for specialty energy plans. After calculating your unique load factor, you can shop the deregulated energy market much more competitively. Request a free quote from Integrity Energy’s expert brokers, who can leverage your consistent energy usage for a cost-effective power plan. 

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