Understanding & Reducing “Demand” Charges

Understanding & Reducing “Demand” Charges

What Is A “Demand” Charge?

Do you have a demand charge on your business utility bill? Do you know what it is?

Any business that uses a fair amount of power, or has large equipment that draws a lot of power at once, probably has demand billing.  If you have recently installed solar, it is a good idea to call your utility after 6 to 12 months to see what impact generating power has had, and if there is a better service classification you can be moved into.

Simply put, the demand charge is the highest level of power you draw from the grid at any time, during a 15 minute window, that establishes the monthly base rate regardless of total kWh usage. Utility rates can be as much as $12 or more per kW demand charge. This “kW demand charge” has nothing to do with kilowatt hours consumed and is a totally independent charge on your bill.

How “Demand” Charges Work:

Example: It’s spring and you don’t use your A/C much. You only have a peak of 15 kW of demand and use 2000 kWh’s. Your bill might look like this:

Total kWh’s used 2000 x .07 = $140.00

Total Demand 15 x $12 = $180.00

Total Charges = $320.00

On the last day of the billing month, it gets blazing hot. You turn on your A/C a just a few minutes to cool things down. Your demand briefly shoots up to 30 kW, and even with the same overall kWh usage, this is what your bill would look like:

Total kWh’s used 2000 x .07 = $140.00

Total Demand 30 x $12 = $360.00

Total Charges = $500.00

Big difference! Especially since that rate is determined by any 15 minute increment during the month!

The demand charge can be seen as a “penalty” for drawing power and creating a load on the grid. The utility has to account for all these peaks added together to make sure there is always plenty of additional power on the grid to supply these demand peaks. Not enough power on the grid? Think brown outs or rolling blackouts…

Ways to Reduce Energy Demand Charges:

  • Stagger larger load equipment use time by more than 15 minutes
  • Timers like NEST thermostats
  • Use multiple pieces of equipment on timers instead of one large unit
  • New energy efficient equipment
  • Replace traditional lights with LED’s
  • Shift equipment use to low load hours in intervals
  • Variable speed motors on heavy load equipment

Solar Power Production & Demand Charges

You should stagger powering up anything with a large motor or heavy load in 20-30 minute intervals if possible.  Solar power production only helps with this sudden “demand” at a negligible level since it is slow consistent energy.  Combined with the above efforts, however, it might be able to bring your total electric bill down. If you become efficient enough, the utility can review and bring you down to a small general service rate.  You will then only be billed for kilowatt hours at a higher rate, as opposed to kWh’s plus peak demand. Calling your utility to find out if you are on the best rate for your mix of usage is something they should be happy to help you with.

By |2017-09-14T11:34:07+00:00July 12th, 2017|Categories: Frequently Asked Questions|Comments Off on Understanding & Reducing “Demand” Charges