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Most industrial and commercial electricity bills are not simply a rate multiplied by consumption. A significant part of the bill, often the largest single component, is based on the highest rate of electricity use recorded during the billing period, known as maximum demand. Understanding how this charge works is necessary background for evaluating any retail offer or demand management strategy.

How maximum demand charges work

Network operators set network charges partly on energy consumed and partly on the peak demand a site places on the network, usually measured as the highest average demand over a short window, commonly thirty minutes, at some point in the billing period. Retailers pass this network charge through to the customer, sometimes bundled into a single rate and sometimes shown as a separate line item. A single short lived spike in demand can set the charge for the entire billing period, which means a site’s bill can be shaped by a handful of half hour intervals each month rather than by its typical operation.

Why this differs from time of use and wholesale exposure

Time of use tariffs charge different rates depending on the time of day, intended to reflect the general pattern of network and generation cost. Wholesale exposure, where relevant, reflects the five minute spot price directly. Maximum demand charges are different again, they respond to the shape of a site’s own load profile rather than to market conditions at a point in time. A site can reduce its wholesale exposure and still carry a high demand charge if its peak load events are not addressed separately.

Retail offers and structural change

Retail offers vary in how they structure demand charges, time of use periods, and network charge pass through, which makes headline rate comparisons unreliable on their own. Retailers and network operators have also flagged future changes to tariff structure, including the possibility of maximum demand charges applied to feed in tariffs for sites exporting to the network, which would extend demand based charging to generation as well as consumption. Sites with flexible load benefit from having these charges modelled against real load data before committing to a retail offer or investing in on site generation or storage.

Where to from here

See Tariff and Demand Charge Optimisation for how this is evaluated for a specific site, or Contact us with a specific question.