Supermarkets have very high total energy costs associated with their refrigerators and freezers. However, when they...

Supermarkets have very high total energy costs associated with their refrigerators and freezers. However, when they consider whether to stay open for business all night (i.e., never close), the relevant energy costs are extremely small. Why?

Expert Solution

To understand the answer to this question it helps to know that Supermarket ABC's electricity bill isn't just related to Supermarket ABC's own electricity consumption (in relevant units e.g. kilowatt month). This is the consumption component of the electricity bill - the amount of the bill is positively related to the number of units consumed.

The amount on the bill is also related to what can be thought of as pricing slabs - the expenditure is positively related to the peak of Supermarket ABC's demand of electricity, such that buyers with more units have a bigger demand component in the expenditure.

These demand component charges can range from "a few dollars per kilowatt-month to upwards of $20 per kilowatt-month." (National Grid)

Thus peak demand can be a substantial portion of the bill, so care should be taken to reduce it whenever feasible.

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Thus reducing electricity consumption during the peak hours (viz. the middle of the day) affects the (heavily weighted) demand component directly and thus has a substantial effect on the total expenditure amount.

Whereas in the non-peak hours additional units only affect the (less weighted) consumption component; these additional units are charged at relatively inexpensive non-peak rates.

Rahul Sunny answered 2 years ago

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