A demand charge is the part of a business electricity bill that is set by how hard a site draws on the grid, not by how much energy it uses. One busy half-hour can set it for the whole month. This article explains how the charge works, which half-hour counts, and what a battery can and cannot do about it.
Key points
- A demand charge is based on the highest half-hour average of power drawn from the grid in the billing period, measured in kW.
- Only grid power counts. Power from your own roof or battery during that half-hour does not.
- A battery lowers the charge by discharging in the half-hours that would otherwise set the peak, so the grid draw stays under a cap.
- A battery left in its default mode often has little charge left when the peak arrives. In Aivy’s modelled days, running the same battery to a plan cut the peak half-hour by 19% to 57%.
What is a demand charge?
A demand charge is a charge on a business electricity bill that is set by the highest rate of power drawn from the grid during a billing period, rather than by the total energy used. Across the National Electricity Market it is usually measured as the average draw over one half-hour, in kilowatts (kW), and billed as a daily or monthly rate for every kW of that peak. Each network sets its own details, but the logic is the same everywhere.
The charge comes from the electricity network, which has to build and maintain poles, wires and transformers big enough for every site’s busiest moment. Your retailer passes it through on the bill, usually as a line called ‘demand’ or ‘capacity’. Two sites can use the same energy in a month and pay very different demand charges, because one of them draws it in short, heavy bursts.
Which half-hour sets it?
The half-hour with the highest average grid draw in the billing period sets the demand charge. On many tariffs that period is a month; on some network tariffs the peak is kept for twelve months, so one bad afternoon can be paid for all year. Some tariffs only count half-hours inside a peak window, such as late afternoon and early evening on working days. Each state’s networks set these rules differently, so your bill, or your retailer, will say which apply to your site.
Only the grid part of the draw counts. If rooftop solar is supplying part of the site at that moment, the meter sees the difference, not the whole load. That is why solar helps with a midday peak and does little for a 6 pm one, when the sun is low and compressors, ovens or an evening shift are running hard.
For most sites the peak half-hour is not a surprise. A cold store peaks when the evening deliveries open the doors and the compressors catch up. A two-shift factory has a start-up peak before the sun is up and a second one when the evening shift begins. An office peaks on a hot afternoon when the air conditioning is working hardest. A month of interval data from the meter shows the pattern plainly.
How does a battery lower a demand charge?
A battery lowers a demand charge by supplying part of the site’s load from stored energy during the half-hours that would otherwise set the peak. The site runs as normal, but the grid sees less of it. The size of the saving depends on how much of the peak the battery can carry, and on whether it has charge left when the peak arrives.
Run to a plan, the battery works like this:
- Find the peak. Forecast the site’s load and solar for the day ahead and work out when the grid draw will be highest.
- Set a cap. Choose the grid draw the site should not go above, with room for the battery to cover the difference.
- Hold charge for it. Keep enough energy in the battery for the peak, even if that means not using it earlier in the day.
- Discharge through the peak. Supply the load above the cap from the battery, half-hour by half-hour, until the peak passes.
- Recharge inside the cap. Top up from solar surplus or from the grid at times and rates that do not create a new peak.
The cap is the whole game. Every half-hour the site stays under it is a half-hour that cannot set a higher demand charge.
Why a battery in default mode is not enough
Most batteries are installed in a default mode: store solar surplus when the roof makes more than the site uses, and discharge whenever the site draws from the grid. On a site with a late peak, that mode spends the stored energy through the afternoon, and the battery is low or empty when the half-hour that matters arrives.
Aivy modelled three business types over 28 days, with the same rooftop solar and the same battery at each site, on an Australian network demand tariff. Compared with the same battery in default mode, running it to a plan lowered the half-hour that sets the demand charge by 19% at an office, 44% at a cold store and 57% at a two-shift factory. These are modelled days, not measured customer sites, and the full charts are on the Commercial & Industrial page.
The difference is not a bigger battery. It is the same battery, with its charge kept for the right half-hour and its recharging timed so it does not create a new peak.
What a battery cannot change
A battery changes the demand and energy parts of the bill. It does not change the daily supply charge, metering charges or other fixed charges, which stay as they are. On a flat-rate tariff with no demand charge, there is little for a battery to shift, and a different tariff may be the first thing to look at.
The saving also depends on size. A battery that can carry only a small part of the peak will lower the demand charge by a small amount. And if the peak comes from a process that cannot be interrupted, the plan has to be built around it: production limits and backup reserves come first, and the battery works inside them.
How to check your own bill
- Find the demand line. Look for ‘demand’, ‘capacity’ or ‘kW’ on the network or usage section of the bill. It shows the peak kW that was billed and the rate applied.
- Note the rules. Check whether the peak resets monthly or is held for twelve months, and whether it is measured all day or only inside a peak window.
- Match it to the site. Think about what was running at that time. Interval data from your retailer, in a NEM12 file, shows the exact half-hour.
- Ask what a battery could carry. Compare the peak kW with the battery’s discharge power. The gap between them is the most a plan can take off the demand charge.
If you would rather not do the arithmetic, send us a bill and we will check it. If a battery will not pay its way on your tariff, we will say so, along with what a different tariff could change.
Questions people ask
Does solar lower a demand charge?
Only when the sun is shining during the half-hour that sets the peak. Solar helps a midday peak and does little for an early-morning or evening one. A battery can carry stored solar into those hours.
Does the demand charge reset every month?
It depends on the network tariff. On many tariffs the peak is measured each month. On some it is held for twelve months, so one high half-hour is paid for a year. Your bill or your retailer will say which applies.
Do I need solar for a battery to lower demand charges?
No. A battery can charge from the grid at off-peak times and discharge through the peak. Solar makes the stored energy cheaper, but the demand saving comes from the timing.
Who sets the limits on the battery?
You do. Production needs, backup reserves and any limits from the battery maker are set first, and Aivy plans the charging and discharging inside them. Big changes wait for your OK.
Written by the Aivy Energy team in Adelaide. Aivy runs batteries for businesses and operates solar and battery power stations across the National Electricity Market: Queensland, New South Wales, the ACT, Victoria, South Australia and Tasmania. Figures are from Aivy’s own modelled scenarios unless a source is named.
