Billing
Demand Charge
Definition
A fee on commercial electricity bills based on the highest rate of power drawn (measured in kilowatts, kW) during a billing period — typically the peak 15- or 30-minute interval. Demand charges can account for 30–70% of a commercial electricity bill.
Why It Matters for Your Business
Demand charges are one of the largest controllable costs on a commercial utility bill. Reducing your peak demand by even a small amount — through load shifting, battery storage, or HVAC scheduling — can save thousands of dollars per month without reducing total energy consumption.
Frequently Asked Questions
How is demand charge calculated?
Your utility measures your peak power draw (in kW) during every 15- or 30-minute interval of the billing period. The single highest interval determines your demand charge for that month. It's then multiplied by the utility's demand rate (e.g., $15/kW).
Can demand charges be reduced?
Yes. Strategies include load shifting (moving high-draw equipment out of peak hours), battery energy storage, demand response programs, and building automation systems that prevent simultaneous large-load startups.
Are demand charges the same everywhere?
No — they vary widely by utility, rate class, and state. Some utilities charge only energy (kWh), while others have tiered demand structures. Always check your actual tariff.