When looking at your electricity bill there can be numerous different charges and fees, and it can be hard to understand what each is for, and what they mean for your business in terms of your energy usage and the related costs. 

If you see ‘demand charge’ on your business electricity bill, having an understanding of what it is may help you save on energy costs. 

What is a demand charge?

Demand charges are generally measured based on the amount of kilowatts (KW) that your premise draws from the electricity grid. This charge is based on maximum demand for electricity. This is different to the other kilowatt hour based charges that are typical for electricity bills.

Demand charges are used by distribution companies to charge customers for the amount of capacity required to draw electricity from the grid. Demand charging parameters and units can vary from distributor to distributor.

Demand charges can be applied during peak periods, or for the maximum amount of electricity your premises draws during the billing period. A demand charge is an additional charge on top of your usual energy usage. 

The purpose of demand charges

Demand charges are aimed at encouraging businesses to use less energy capacity during peak demand periods on a distribution network (hence the name).  

Use of energy during peak times can result in increased pressure on the electricity network. This can commonly occur during extremely hot days or at high use times during the day, for example, when more people use air conditioning systems at the same time, or when businesses all open in the morning. 

Using demand charges, distributors (through your retailers’ bill to you) charge customers for the additional strain that they put on the electricity grid, and provide an incentive for those customers to move or lower the strain they may be causing.

Why understanding your electricity charges matters

Understanding your business electricity charges means you can take control of your energy usage and how you may be able to reduce costs. 

For example, where a distribution business is using a maximum demand charge calculation to charge for demand, they will charge a customer for the maximum amount of demand they have used within a month, for that whole month. This means that one big day where all your systems are drawing electricity at the same time, will have an impact across the whole month’s electricity charges. 

View your usage summary to get insight into how your energy usage and demand charges change each month. You may find it has gone up or down at certain periods during the year. 

It can be good to know what to expect with regards to your energy usage, as it can ensure you account for higher costs during certain times of the year, or give you more information when looking for ways to reduce your consumption during those periods. 

Lowering your demand charge

Once you understand demand charges (if they apply to you) and the period during which it applies to your business energy, you can implement practices to lower this charge and your overall energy costs. 

Be aware of peak energy use periods and try to avoid using high demand equipment during them where possible. By finding out what period of the day your demand charge is calculated, you can know when to avoid using excessive energy and limit use of appliances and equipment during these times, or invest in more energy efficient models to help reduce costs. It may be as simple as staggering turning on machines in the morning if those machines draw extra power when they warm up.

With heating and cooling systems, keep an eye on the temperature to ensure the system isn’t working too hard and putting additional strain on the electricity grid. Look for other ways to lower your energy usage, such as using a fan during summer, as these use less energy than an air conditioning system, or encouraging staff to wear warmer clothing during winter so you don’t need to rely so heavily on your heating system.

Set timers, so your appliances and equipment turn off during peak periods, or put up notices to remind your staff to turn lights off when leaving an empty room. 

As the demand charge is based on when and how much you draw on the network during the demand period, by reducing your demand on the distribution network at that time, you may be able to save on your electricity bills. 

If you have any questions about the demand charge on your bill, contact our customer service team.