Definition
A demand charge is the capacity part of a two-part tariff. It is billed on the customer's maximum demand, the peak power in kW, during a billing cycle. Unlike the energy charge, which is billed per kWh, it prices the grid capacity the customer occupies. Demand-side response, peak shaving and valley filling, and an energy storage system can lower that maximum and cut the bill for commercial and industrial customers.
Billing method of demand charges
The charge is usually the higher of this month's maximum demand and the maximum over the past several months. Some regions bill time-of-use demand separately for critical peak, peak, shoulder, and off-peak. Smart meters and power-quality monitors can track demand as it happens, and the cloud platform shows the curve and a forecast. With load forecasting, peak hours can be seen early enough to set a demand-side response or peak shaving and valley filling plan.
Methods to reduce demand charges
Load shifting. Demand-side response cuts or moves controllable load in the peak hours. Storage. An energy storage system discharges at the peak so less power is taken from the grid. Distributed PV. Daytime generation from distributed PV can ease the midday peak. Demand management. Smart meters and power-quality monitors watch the load so a short spike does not set a new maximum. SimtoLink can connect the devices, collect the data, and integrate them through APIs.
Implementation Guidance
Cutting the charge means installing smart meters or power-quality monitors, standing up load forecasting and demand-side response, and judging the payback of an energy storage system and of peak shaving and valley filling. When selecting, check the fit with the electrical system already in place, and whether power quality and supply reliability still hold. For a site with a high demand charge, the saving is often large.
The metering window for maximum demand
A demand charge bills the maximum demand inside a billing period. Demand is the peak of average power over an interval. It is not an instantaneous current spike, and it is not the energy used in the period. Window length, whether the window slides, and whether the bill takes the higher of this period and earlier months, all change the kilowatts on the bill. Time-of-use demand also splits the peak into different periods. The meter supplies a measured value. Whether the bill uses it still depends on the demand period and the assessment method in the contract. A drop in energy used does not by itself mean this capacity charge will drop.
To manage cost with it, first obtain a curve that matches the billing definition: the same window, the same metering point, and the same power direction. Optimizing only a submeter below the main meter can still leave the main meter pushed up by another load. Controllable load must come down before the window ends. Demand looks at the average of the whole window, so a drop in the last few minutes cannot rescue an average that is already high. If storage or photovoltaics are used to hold demand down, the effect must appear at the grid-side metering point. Self-consumption that never shows on the main meter does not reduce this charge.
Treating maximum instantaneous power as demand is a common mix-up. A very short shock can have a high instantaneous value while the window average never becomes the billed peak. A moderate load that lasts the whole window can form the demand instead. Using a forecast curve in place of the meter means the site does not limit when the forecast is low, and the real window has already been exceeded. Adding submeters does not equal main-meter demand, because the peaks do not have to occur together. Ignoring power direction makes storage charging look like a new source of demand.
Also check whether the settlement month equals the calendar month, and whether the contract takes the higher of this month and several earlier months. Pushing this month's peak very low may leave the bill unchanged if settlement still uses a historical high. In a trial, compare the meter with the billing definition over one complete window, and confirm that interval, sliding, and metering point match, before talking about reduction. The assessment period for demand response does not necessarily coincide, so holding demand down has to be scheduled on its own. How storage enters the main-meter reading should be checked together with the interconnection point of the energy storage system.
Predicting the full-window peak from the current average before the window has closed also misleads the operation. Load that is low in the first half and starts together in the second half shows up only toward the end of the window. Use the meter's frozen value after the window closes, then look back at which stretch of load made that peak. Do not settle or assess on a rolling value that has not closed.
If the contract takes the higher demand among this month and several earlier months, lowering only this month's peak can still leave the bill on the historical high. Check that ratchet clause before the strategy starts. Otherwise the site applies a limit, and the settlement definition does not move with it.