Commercial energy users typically receive electricity with different billing parameters than residential consumers. One of the ways this happens is through demand charges, which address peak usage rates.
What Is a Demand Charge?
Demand charges occur when an electricity company charges commercial customers for the highest amount of energy they use at any one point throughout the month, regardless of their average energy usage.
The idea is that it takes a lot of work and resources to create the infrastructure necessary to meet high demand at any given time. If it’s the hottest day of the year, everyone in town will be running their air conditioning on full blast. The electricity company needs to know that they can meet that need and deliver electricity to everyone at once. The purpose of a demand charge is to support this need by collecting more from the users who consume the most energy at once.
Demand charges can occur at different times, like on-peak, semi-peak and off-peak hours. It depends on the company.
How Is a Demand Charge Calculated?
Knowing how to calculate demand charges is an important part of understanding them. Energy consumption is typically recorded through a meter in 15-minute intervals. Demand charges are based off of the most energy consumed during one of those intervals throughout the month. Even if you only use a lot of energy for a short amount of time, it could still be reflected in your demand charges.
Usage vs. Demand Charges
Your energy bill can be made up of both usage and demand charges. Usage charges are determined based on the average amount of energy used over a time period, while demand charges are calculated based on energy use at one point in time. If your demand at one time is much higher than your typical energy usage, it will probably reflect in your bill.
How Demand Charges Affect Your Energy Bill
If not managed, demand charges can make up a significant portion of your energy bill. In some cases, it can even exceed the amount spent on usage. With this in mind, monitoring and controlling your peak usage can help you lower your electricity bill. You can do this by managing your highest points of demand. Identify peak times and spread out your usage throughout the day to avoid spiking usage at one point in time.
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