SolarToolsHow This Tool Works
The Demand Charge Calculator helps commercial and industrial customers understand their electricity bills — specifically the demand charges that can account for 30–70% of a commercial bill. Unlike residential bills (which charge only for energy used, kWh), commercial bills charge for both energy (kWh) and peak demand (kW) — the highest 15-minute average draw during the billing period.
Demand charges exist because the utility must maintain sufficient generation capacity to meet your peak demand, even if you only hit that peak for 15 minutes per month. A factory that draws 200 kW for 15 minutes and 50 kW for the rest of the month pays the same demand charge as a factory that draws 200 kW continuously. This creates a powerful incentive to flatten your load.
The calculator shows your bill breakdown (demand vs energy vs fixed charges), the percentage of your bill that comes from demand charges, and the savings from reducing peak demand. For most commercial customers, shaving peak demand 20–30% saves $5,000–$30,000/year.
- Peak demand (kW) — the highest 15-minute average demand in the billing period. Find on your utility bill.
- Demand charge rate — $/kW from your utility rate schedule. Commercial: $8–25/kW. Industrial: $5–15/kW.
- Monthly energy usage — total kWh from your bill.
- Energy charge rate — $/kWh from your rate schedule.
- Facility charge — fixed monthly customer charge.
- Peak reduction potential — kW you can shed or shift. From a load audit or energy management system.
- Power factor penalty — if your PF is below the utility threshold (typically 0.90–0.95). 0 if none.
The "demand % of bill" tells you how much of your bill comes from demand charges. Above 50% means demand reduction should be your #1 savings strategy.
When to Use This Calculator
What is demand charge?
Demand charge is a fee based on the highest rate of electricity usage (kW) during a billing period, typically measured as the highest 15-minute average. The utility charges this because they must maintain generation capacity to meet your peak, even if you only hit it briefly. A customer drawing 200 kW for 15 minutes pays the same demand charge as one drawing 200 kW all month — even though their energy usage (kWh) is dramatically different.
Demand vs energy charges
Energy charges ($/kWh) pay for the actual electricity you consume. Demand charges ($/kW) pay for the capacity to deliver your peak. On a typical commercial bill: energy charges are 40–70% of the total, demand charges are 30–50%, and fixed charges are 5–10%. For industrial customers with high peaks but moderate energy use (like a factory running heavy machinery briefly), demand charges can exceed 60% of the bill.
Peak shaving strategies
1. Load shifting: move energy-intensive processes to off-peak hours (night, weekend). 2. Load shedding: turn off non-critical equipment during peak periods. 3. Battery storage: charge batteries off-peak, discharge during peak to reduce grid demand. 4. Peak prediction: use energy monitoring to predict and prevent peaks before they happen. 5. Power factor correction: install capacitors to reduce reactive power (if PF penalty applies).
The 15-minute rule
Demand is measured as the highest 15-minute average kW during the billing period. A 200 kW spike for 5 minutes may not set your demand peak (it depends on the meter's averaging window). But a 200 kW sustained draw for 15+ minutes will. Energy management systems monitor real-time demand and automatically shed loads before the 15-minute window is exceeded.
Battery storage for demand reduction
A battery system can reduce demand charges by 20–50%. The battery charges during off-peak hours (low demand) and discharges during peak periods to offset grid draw. For a 150 kW peak with $15/kW demand charge, shaving 30 kW saves $450/month or $5,400/year. A $30,000 battery (after ITC) pays back in 5.5 years on demand savings alone — before any energy arbitrage or backup value.
Power factor penalties
If your facility has a poor power factor (below 0.90), the utility may charge a penalty or bill on apparent power (kVA) instead of real power (kW). Installing power factor correction capacitors can eliminate this penalty and reduce demand charges. See the Power Factor Calculator for details.
Frequently Asked Questions
Demand charge is a fee based on the highest 15-minute average electricity usage (kW) during the billing period. Commercial customers pay it because the utility must maintain capacity to meet peak demand. Demand charges are typically $8-25/kW for commercial and can be 30-50% of the total bill.
Demand charge = peak demand (kW) × demand rate ($/kW). Peak demand is the highest 15-minute average in the billing period. If your peak is 150 kW and the rate is $15/kW, the demand charge is $2,250/month — regardless of how much energy (kWh) you used.
1. Load shifting (move processes to off-peak). 2. Load shedding (turn off non-critical equipment during peaks). 3. Battery storage (discharge during peaks). 4. Peak prediction systems. 5. Power factor correction. A 20-30% peak reduction typically saves $5,000-30,000/year.
Yes — batteries are one of the most effective demand reduction tools. Charge off-peak, discharge during peak periods to offset grid draw. A $30,000 battery can save $5,000-10,000/year on demand charges, paying back in 3-6 years before energy arbitrage or backup value.
Demand (kW) is the rate of electricity usage at a given moment — like your speedometer. Energy (kWh) is the total amount used over time — like your odometer. A 100 kW load for 1 hour uses 100 kWh. Commercial bills charge for both: energy (kWh) and peak demand (kW).
Some utilities have a 'ratchet' clause where your demand charge is based on the highest peak in the past 12 months, not just the current month. If you hit 200 kW in July (AC peak), you may pay demand charges on 200 kW every month for a year — even if winter demand is 80 kW. Check your rate schedule for ratchet provisions.
Further Reading
Deep-dive articles and guides related to this calculator.