What is the Demand Charge?
by Sandy Gutner, P.E., ROI Energy Services

It’s true that understanding all the elements of your electric bill can be a daunting task. But it’s important if you are trying to control your electricity use and costs. If your organization uses a lot of electricity, you will notice that your bill does not look like your bill at home.

If you have a Demand Charge rate structure, the two types of use affect your electricity costs – demand and consumption. The names vary among utilities but the effect is the same. Demand and consumption each have a separate rate in part because they are measured differently. Demand is measured in kilowatts (kW), while the total amount of electricity used is measured in kilowatt-hours (kWh).

Plus there are several other charges that vary depending on these two components (e.g., fuel charge, non-fuel charge, taxes, environmental charge, etc.) If you can cut your demand you reduce the cost of demand as well as all of the charges that use demand in their calculation.

If you have a demand-based tariff, your utility has installed a special demand meter that tracks and records the highest level of electricity demand for each 15-minute (or 30 minute) interval during the billing period. All of the affected charges are multiplied by the peak demand.

Why Should You Care About the Demand Charge?

Obviously, like most factors in business it’s the money. If you can control the demand charge without impacting your business you can significantly lower your electricity costs.

Peak demand charges can represent up to 30% of your utility bill. Certain industries, like manufacturing and heavy industrials, typically experience much higher peaks in demand due largely to the start-up of energy-intensive equipment, making it even more imperative to find ways to reduce this charge – but regardless of your industry, taking steps to reduce demand charges will save money.

Show Me the Math: How Demand Charges are Calculated?

Consumption is measured at a rate based on kilowatt-hours (kWh), or how many kW were used in every hour. Demand is measured in kilowatts (kW) or the peak number of kW used in a short interval and measures the intensity of power draw.

Demand Charge shows how one business can pay over $50,000 per year more for electricity than the other even though they both use the same kWh. This example shows how managing the demand peaks saves over 12% even with the same consumption.

Sandy Gutner, P.E., is the President of ROI Energy Services, Weston, FL.
Website: www.ROIEnergyServices.com
Phone: 1-888-855-5471
E-mail: sgutner@ROIEnergyServices.com

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