Article

Batteries for Peak Shaving Basics: Sizing and Savings in 2026

Learn batteries for peak shaving basics in 2026: compare kW and kWh sizing, calculate demand-charge savings, and check costs and tariff rules.

Published October 11, 2026

Batteries for peak shaving reduce the power a facility draws from the grid during the intervals that determine its demand charges. Their value comes from lowering billable kilowatts, not necessarily reducing total electricity consumption; charging losses can increase purchased kilowatt-hours. A useful assessment starts with the utility tariff and the facility’s interval load data, then checks whether the battery can sustain the required reduction throughout every relevant peak.

Peak-Shaving Inputs and Their Effect on Savings

The figures below describe a hypothetical U.S. commercial facility. They are calculation inputs—not national averages, local utility rates, or equipment recommendations.

Decision input	Illustrative value or comparison	What it determines
Demand-charge rate	USD 20/kW per month	The value of each kilowatt actually removed from billing demand
Billing-demand interval	15 minutes, assumed	The averaging window the battery must influence; verify the actual tariff
Peak before battery discharge	50 kW	The baseline for the simplified example
Target peak after discharge	45 kW	A required reduction of 5 kW
Peak duration	15 minutes versus 2 hours	Requires 1.25 kWh versus 10 kWh delivered at a constant 5 kW
Gross demand-charge savings	USD 100/month; USD 1,200/year	Assumes a 5 kW billing reduction in every month at the same rate
Battery power versus energy	kW versus kWh	Power limits the size of the reduction; energy limits its duration
Alternative to storage	Stagger or reschedule flexible loads	Can reduce demand without buying a battery, where operations permit
Authoritative starting points	Utility tariff, interval data, manufacturer specifications	Establish the billing rules and usable equipment capability
Main failure condition	Another peak—or battery charging—sets equal or higher billing demand	Can eliminate the expected demand-charge savings

Actual commercial tariffs may contain several demand-charge components rather than one monthly rate. For example, Southern California Edison’s September 2026 TOU-GS-3 fact sheet distinguishes facilities-related demand from time-related demand and describes rate options with different demand and energy charges. That example applies to eligible customers in SCE’s California service territory, not to commercial accounts nationwide.

How Batteries Reduce Demand Charges

A behind-the-meter battery charges when conditions permit and discharges when grid demand approaches a chosen limit. The facility still uses electricity, but part of its load is temporarily supplied by the battery instead of the utility.

For a simplified discharge interval:

[
P_{\text{grid}}=P_{\text{facility}}-P_{\text{battery,AC}}
]

Here, all power values are in kW, and battery output is measured on the AC side supplying the facility. If facility demand is 50 kW and the battery supplies 5 kW throughout the interval, grid demand becomes 45 kW.

This is different from energy efficiency. An efficiency improvement reduces the electricity needed to perform a task; peak shaving changes when electricity is purchased. Battery storage can reduce demand charges while increasing total purchased energy because its round-trip efficiency is below 100%.

A 15-Minute Peak Is an Average, Not a Momentary Spike

For a tariff using 15-minute average demand:

[
P_{\text{interval}}=\frac{E_{\text{interval}}}{0.25\text{ hour}}
]

If the meter records 12.5 kWh during that interval:

[
P_{\text{interval}}=\frac{12.5}{0.25}=50\text{ kW}
]

Reducing the interval’s grid energy to 11.25 kWh produces:

[
P_{\text{interval}}=\frac{11.25}{0.25}=45\text{ kW}
]

The battery therefore needs to deliver 1.25 kWh within that interval. A brief 5 kW discharge does not produce a 5 kW reduction in the full interval average. Research on commercial storage considers different demand-averaging windows, including 15, 30, and 60 minutes, so the actual tariff—not a universal assumption—must determine the analysis.

A single successful discharge also does not establish monthly savings. If another qualifying interval reaches 50 kW, the simplified monthly maximum remains 50 kW.

Battery Power and Capacity for a 5 kW Reduction

Battery sizing has two separate requirements:

Discharge power, in kW, must cover the required reduction.
Available energy, in kWh, must cover the duration and repetition of the peak.

For a constant reduction:

[
E_{\text{AC,required}}=\Delta P\times t
]

For a varying load, calculate the energy above the target demand ceiling across the event:

[
E_{\text{AC,required}}
=\sum_i \max(P_{\text{load},i}-P_{\text{target}},0)\times\Delta t_i
]

Power is in kW, time is in hours, and the result is kWh. Interval-based calculations are a screening method; faster load changes and control response require equipment-specific assessment.

Capacity Required at Different Peak Durations

The following table assumes a constant 5 kW discharge, an 80% usable fraction of nameplate DC energy, and 95% discharge-path efficiency. These are hypothetical sizing assumptions, not manufacturer ratings. Values are rounded upward to the nearest 0.01 kWh.

[
E_{\text{nameplate,DC}}
=\frac{E_{\text{AC,required}}}
{f_{\text{usable}}\times\eta_{\text{discharge}}}
]

Peak duration	Required AC discharge power	Energy delivered to the load	Calculated nameplate DC energy
15 minutes	5 kW	1.25 kWh	1.65 kWh
30 minutes	5 kW	2.50 kWh	3.29 kWh
1 hour	5 kW	5.00 kWh	6.58 kWh
2 hours	5 kW	10.00 kWh	13.16 kWh

For the 15-minute case:

[
E_{\text{nameplate,DC}}
=\frac{5\times0.25}{0.80\times0.95}
=1.6447\text{ kWh}
]

These results are energy requirements, not final equipment selections. The selected system must also provide the required continuous AC output under its specified operating conditions.

Check whether the manufacturer’s published capacity is nameplate DC energy, usable DC energy, or usable AC energy. Applying an additional usable-capacity or efficiency adjustment to a rating that already includes it would count the same limitation twice.

Repeated Peaks and Backup Reserves

A battery with enough energy for one event may not cover several events before it can recharge. Likewise, energy reserved for backup is unavailable for routine peak shaving unless the operating policy allows that reserve to be used.

Evaluate the complete load profile, recharge opportunities, manufacturer limits, and expected degradation. The 2025 Annual Technology Baseline explicitly includes degradation-related operating costs in its storage modeling; maintaining capability over time is part of the economics, not a free assumption.

Hand Calculation: Annual Savings From Shaving 5 kW

This example uses a hypothetical U.S. commercial account with one monthly demand charge. It assumes:

Baseline billing demand: 50 kW.
Billing demand after storage: 45 kW.
Demand-charge rate: USD 20/kW per month.
The same reduction and rate in all 12 billing months.
No minimum-demand floor, historical ratchet, or other demand component that changes the result.
Battery charging does not establish a higher peak.

Calculate Gross Demand-Charge Savings

For this simple tariff:

[
C_{\text{demand}}=P_{\text{billing}}\times R_{\text{demand}}
]

Before storage:

[
C_{\text{before}}=50\times20=\text{USD }1{,}000/\text{month}
]

After storage:

[
C_{\text{after}}=45\times20=\text{USD }900/\text{month}
]

Monthly savings:

[
S_{\text{month}}=(50-45)\times20
=\text{USD }100
]

Annual gross savings:

[
S_{\text{annual,gross}}=100\times12
=\text{USD }1{,}200
]

The benefit depends on reducing billing demand by 5 kW in every month—not simply discharging at 5 kW occasionally.

Use the Demand Charge Calculator to check the demand-charge portion of the assessment against the applicable billing inputs. Battery sizing, charging losses, and lifecycle costs require separate calculations.

For seasonal or changing rates, calculate each month individually:

[
S_{\text{annual,gross}}
=\sum_{m=1}^{12}
\left(P_{\text{before},m}-P_{\text{after},m}\right)R_m
]

Where a tariff has multiple demand components, calculate each component under its own measurement window and billing rules.

Include Charging Losses Without Double-Counting Energy Savings

Assume the battery delivers 1.25 kWh per event for 300 events per year:

[
E_{\text{out,annual}}=1.25\times300=375\text{ kWh}
]

Using an illustrative 85% round-trip efficiency:

[
E_{\text{charge,annual}}
=\frac{375}{0.85}
=441.18\text{ kWh}
]

[
E_{\text{loss}}=441.18-375=66.18\text{ kWh}
]

The 2025 ATB uses 85% as a representative modeling assumption. It is a reference starting point, not a guaranteed efficiency for a particular installation.

If charging and displaced grid energy both cost an assumed USD 0.12/kWh:

[
C_{\text{loss}}=66.18\times0.12
\approx\text{USD }7.94/\text{year}
]

Savings after this energy-loss adjustment, but before other operating costs, are:

[
S=1{,}200-7.94
=\text{USD }1{,}192.06/\text{year}
]

Do not add (375\times0.12) as a separate energy-saving benefit: the battery must be recharged. With different charging and discharge-period prices, calculate the net energy-cost benefit as:

[
S_{\text{energy}}
=E_{\text{out}}R_{\text{displaced}}
-E_{\text{charge}}R_{\text{charging}}
]

Use actual time-of-use prices and include any demand impact caused by charging.

Commercial Battery Costs and Payback

A battery-pack price is not an installed-system price. The commercial storage cost model in the 2025 ATB separates energy-related costs from power-related and fixed costs, which helps explain why a single USD/kWh figure cannot describe every project. The publication uses a modeled 2024 cost basis and future scenarios; those scenarios are not observed 2026 contractor prices.

For a site-specific proposal, establish the following scope before comparing costs:

Cost item	Required scope or assumption
Battery equipment	Nameplate and usable energy, chemistry, warranty, degradation terms
Power conversion	Continuous AC output and applicable operating limits
Controls	Demand monitoring, tariff-aware dispatch, communications, subscriptions
Installation	Electrical work, equipment placement, civil work, commissioning
Approvals	Utility interconnection, permits, and applicable local requirements
Ongoing costs	Maintenance, insurance changes, software, auxiliary consumption
Lifecycle costs	Capacity augmentation, replacement, and end-of-life obligations

DOE’s cost-benchmark methodology similarly separates hardware from fieldwork, office work, and other project costs. Its commercial solar-plus-storage benchmarks describe a defined combined system, not a standalone peak-shaving battery quote.

Calculate Payback From Net Savings

[
S_{\text{net}}
=S_{\text{demand}}+S_{\text{energy}}
-C_{\text{operating}}
]

[
\text{Simple payback}
=\frac{C_{\text{net,installed}}}{S_{\text{net,annual}}}
]

For illustration only, suppose the installed cost is USD 12,000 and annual operating costs are USD 200. Using the preceding example:

[
S_{\text{net,annual}}
=1{,}200-7.94-200
=\text{USD }992.06
]

[
\text{Simple payback}
=\frac{12{,}000}{992.06}
\approx12.1\text{ years}
]

The USD 12,000 input is hypothetical, not a commercial-storage price benchmark. Simple payback also excludes financing, discounting, future tariff changes, and replacement costs. Do not count incentives until eligibility and payment conditions are confirmed.

Compare Storage With Other Demand-Reduction Options

The best approach depends on whether the peak comes from flexible loads, short events, or sustained production.

Approach	Suitable condition	Main limitation
Stagger equipment operation	Flexible loads overlap unnecessarily	Production or comfort constraints may prevent rescheduling
Battery peak shaving	Loads must operate, but storage can cover the peak	Requires sufficient power, energy, and recharge opportunity
Efficiency improvements	Inefficient equipment contributes to energy use and the peak	Demand savings depend on operation during the billing peak
Tariff review	Another eligible rate better matches the load profile	Lower demand rates may come with higher energy rates

Tariff selection can materially change storage value. SCE’s 2026 TOU-GS-3 explanation, for example, describes options that trade lower demand charges for higher energy charges. Compare the complete annual bill rather than selecting a rate solely because its USD/kW charge is lower.

Evaluate a Peak-Shaving Proposal

Obtain at least 12 months of bills and interval data. Match the data resolution to the utility’s demand measurement and include seasonal operating patterns.
Identify every demand-charge component. Record measurement windows, seasons, minimums, historical-demand provisions, and relevant tariff options.
Recalculate the baseline bills. Resolve differences between the model and billed demand before adding storage.
Choose a target demand ceiling. Examine every interval above it, not just the single highest reading.
Calculate power and energy requirements. Include consecutive events, recharge limits, backup reserves, and manufacturer operating limits.
Model charging and discharging together. Check that charging does not create a new billable peak.
Calculate net annual savings. Include energy-price differences, losses, operating costs, and degradation-related costs.
Compare the result with a scoped installed proposal. Test weaker savings, longer peaks, and future replacement costs rather than relying on one favorable case.

This process turns a simple kW calculation into a bill-based assessment. It does not replace electrical design, manufacturer instructions, utility approval, applicable NEC requirements, or the local authority having jurisdiction.

Common Peak-Shaving Mistakes

A battery can successfully reduce one load event without reducing the utility bill. Savings depend on the billing-demand definition, every relevant peak, and the battery’s charging behavior—not its largest advertised kWh rating.

Common errors include confusing kW with kWh, sizing only for one short event, using round-trip efficiency as discharge efficiency, and treating a national benchmark as a local installed price. Another error is counting the same energy shift as both avoided consumption and time-of-use savings.

The tariff remains the authoritative billing source. SCE explicitly states that its explanatory fact sheet does not replace CPUC-approved tariff terms; apply the same distinction between educational guidance and governing rules when evaluating another utility.