Demand Charges on a Business Electricity Bill
Two sites can use exactly the same number of kilowatt hours and pay very different demand charges, because demand measures how hard the connection is worked, not how much energy passes through it.
kW and kWh are different questions
A kilowatt hour measures energy: the amount delivered over time. A kilowatt measures power: the rate at which it is drawn at a given moment. Demand charges are based on the second, while most of the bill is based on the first.
A useful analogy is water. kWh is the volume that flowed through the pipe over the month; kW is how hard the pump was working at its busiest moment. A site can use little water overall and still work the pump hard for short periods.
How demand is measured
Demand is usually measured from interval meter data as the highest average draw over a short window, often fifteen or thirty minutes. Some tariffs apply a monthly maximum; others apply a ratchet that carries a high past peak forward for several months.
The time window matters. A spike shorter than the averaging interval is smoothed; a sustained load across it is not. That is why the same equipment can produce different demand charges on different tariffs.
Why demand charges exist
Networks must be built to meet the highest demand placed on them, even if that peak occurs rarely. Demand charges pass the cost of that capacity to the sites that drive it, which is why they are usually set by the network rather than the retailer.
For a business, that means demand is largely a physical and operational cost. A retailer can compete on energy rates; it generally cannot discount the network's demand component.
What pushes demand up
Simultaneous loads are the usual cause: heating and cooling running with refrigeration, or several pieces of equipment starting at once. A site can have modest total consumption and a high peak if its large loads coincide.
Staggering start-up, sequencing equipment, or shifting flexible load away from the busiest half hour can lower measured demand. The scope for this depends on the site, and interval data is the place to start.
How demand changes a plan comparison
A comparison built on annual kWh assumes usage is spread evenly. For a site with a demand charge or a peaky load, that assumption is wrong, and a plan that looks lowest on energy can be more expensive once demand is included.
Check whether each offer prices demand the same way, and whether the demand figure used in the estimate matches the site's actual interval data. If it does not, the ranking is not yet one you can rely on.
Put it into practice
Upload an electricity bill to run a comparison on your site's actual usage, or read more business electricity guides.
Related guides
- How to Read a Business Electricity Bill
- Time-of-Use, Flat and Demand Tariffs Explained
- Network Charges vs Retail Charges: Who Charges You for What
- Moving Premises: A Business Electricity Checklist
- How to Compare Business Electricity Quotes
- Do You Need an Energy Broker for Your Business?
- Switching Business Electricity Retailer
Business electricity by state
Network operators and market rules differ across Australia, so the mechanics described above play out differently depending on where your site is.
- Business electricity in New South Wales
- Business electricity in Victoria
- Business electricity in Queensland
- Business electricity in South Australia
- Business electricity in Western Australia
- Business electricity in Tasmania
- Business electricity in Australian Capital Territory
- Business electricity in Northern Territory
Electricity networks
Every business site connects to one distribution network. Knowing which one helps you read a quote and check that a plan is actually offered at your address. See every network or pick one: