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How do demand charges impact your utility bill?

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If you are a business owner or manager, you probably know that your utility bill is not just based on how much energy you use, but also on when and how you use it. One of the factors that can significantly affect your bill is the demand charge, which is a fee that reflects the peak power demand of your facility during a billing period. In this article, you will learn what demand charges are, how they are calculated, why they matter, and how you can reduce them with some smart energy management strategies.

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SATYA NARAYAN PALAI

Vice President (Sustainable Development and Total Quality Management)
Thomas Houdbert

Volpil | Entrepreneur | CentraleSupélec | énergie ????

1 What are demand charges?

Demand charges are a way for utility companies to recover the costs of maintaining and operating the grid infrastructure that delivers electricity to your facility. They are based on the highest amount of power, measured in kilowatts (kW), that you draw from the grid in any given 15-minute interval during a billing period, usually a month. This is also known as your peak demand. Demand charges are usually expressed as a dollar amount per kW of peak demand, and they can vary depending on the time of day, season, and rate plan.

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SATYA NARAYAN PALAI

Vice President (Sustainable Development and Total Quality Management)
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Usually, Demand Charges are measured on actual peak demand in KW or KVA of a particular month. The Demand charges are evaluated by multiplying with peak demand and the applicable rate INR/KW or INR/KVA decided by the utilities. To reduce the demand charges, peak usage load to be staggered as far as possible during a day/week/month. We have to use energy-efficient equipment/appliances i.e HVAC, heating, ventilation, pumping, Lighting, etc. in the Building/industry to reduce peak demand. In addition, the Energy storage systems, like efficient batteries or thermal storage can be used to optimize the demand charges.

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2 How are demand charges calculated?

To calculate your demand charge, you need to know two things: your peak demand and your demand rate. Your peak demand is the highest power level that you reached in any 15-minute interval during your billing period. You can find this information on your utility bill or by using a smart meter or energy monitoring system. Your demand rate is the amount that your utility charges you per kW of peak demand. This can also be found on your bill or by contacting your utility. To get your demand charge, simply multiply your peak demand by your demand rate. For example, if your peak demand was 100 kW and your demand rate was $10/kW, your demand charge would be $1,000.

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3 Why do demand charges matter?

Demand charges matter because they can make up a large portion of your utility bill, especially if you have a high peak demand relative to your average energy consumption. For some businesses, such as restaurants, hotels, or manufacturing facilities, demand charges can account for 30% to 70% of their total bill. This means that even if you reduce your overall energy usage, you may not see a significant decrease in your bill unless you also lower your peak demand. Demand charges also reflect the impact that your facility has on the grid, as higher peaks require more generation and transmission capacity and can cause congestion and instability.

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Yiu Hong Lee

MSc, BEng(Hons), CEng MIET, MIEEE, LEED AP(BD+C), WELL AP
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With the demand charge rate, we can shift some of our peak load to the time period with cheaper rate, as a result, we will save our bill. In the generation side, by doing the load demand time shifting, the whole area can use up the idle energy generated by the generator when the power plant in a situation that they cannot turn off one of the turbine but the load is average low for all the on turbine.

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4 How can you reduce demand charges?

Reducing demand charges requires thoughtful planning and analysis of your energy usage patterns and needs. You can lower peak demand and save money on your bill in several ways. For instance, try to avoid running multiple equipment or processes that consume a lot of power at the same time; instead, schedule them to run at different times of the day or week, preferably during off-peak hours when demand rates are lower. Energy storage systems, like batteries or thermal storage, can also help reduce peak demand by storing excess energy during low-demand periods and releasing it during high-demand periods. Additionally, energy efficiency measures such as upgrading lighting, HVAC, or appliances can reduce overall energy consumption and peak demand. Moreover, participating in demand response programs can earn rewards or credits for helping the grid balance supply and demand and avoid blackouts.

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Thomas Houdbert

Volpil | Entrepreneur | CentraleSupélec | énergie ????
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To reduce demand charges, it's essential to manage energy use more effectively, aiming for less peak power demand from the grid rather than lower overall energy consumption. This approach often involves shifting usage to distribute it more evenly throughout the day. While this is relatively straightforward for individuals, it poses a significant challenge for industrial operations. The article's mention of energy storage as a solution is valid. However, it's crucial to consider the associated costs and ensure the project's profitability before implementation.

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5 How can you choose the best rate plan for your facility?

One of the most important steps to optimize your utility bill is to choose the best rate plan for your facility. Different rate plans have different demand rates, energy rates, and time-of-use periods that can affect your bill. To choose the best rate plan, you need to compare your options and analyze your energy usage patterns and needs. You can use online tools, such as tariff analysis software, to help you find the most suitable and cost-effective rate plan for your facility. You can also consult with an energy management expert or your utility representative to get more guidance and advice.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do demand charges impact your utility bill?

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1 What are demand charges?

2 How are demand charges calculated?

3 Why do demand charges matter?

4 How can you reduce demand charges?

5 How can you choose the best rate plan for your facility?

6 Here’s what else to consider

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