The National Renewable Energy Lab (NREL) released a report stating million of industrial and commercial customers overpaid the demand charges for $15/kW. 

As the energy usages rates fall in many areas worldwide, commercial and industrial demand charges show a significant increase in electricity bills. In some cases, demand charges even account for nearly 50% of the total fees. 

Unsurprisingly, facility managers are constantly looking for reducing their demand charges. Businesses cannot change the demand charge rate. However, they can find a way to minimize peak energy demand, which will calculate the bills.

In this article, we will get to know more about demand charges and how to reduce them effectively.

What are Demand Charges?

Most business owners are not familiar with what demand charges are and how they can be mitigated using energy storage. Demand charges are additional fees that utilities charge non-residential or commercial customers to maintain a constant electricity supply. 

Generally, commercial customers’ electricity bills can be divided into energy consumption and energy demand. Demand charges usually count into the business’s monthly electricity bills with a substantial amount. In some instances, demand charges can be higher than the energy portion of the electric bill itself. 

As a result, the monthly electricity bills depend not only on how much electricity was used but also on the rate of electricity consumption. Demand can be defined as the maximum amount of energy a business uses at any given point in a billing cycle.

Here is an analogy for how demand charges work in electricity consumption.

Let’s assume that we have two ten-gallon buckets. We need to fill each bucket full of water. The first bucket was filled at one gallon per minute, while the second bucket was filled at two gallons per minute.

In the end, the total amount of water to fill the bucket is the same, but the rate buckets are filled is different. The time took to fill the first bucket is five times that of the second. Therefore, not addressing the demand charges issue makes you use the first bucket. Did you get it?

How are demand charges calculated?

Demand charges are typically charged to large industrial and commercial customers only. Utility companies typically calculate your demand based on 15-minute increments of the highest consumption from your previous month’s usage and then multiply that by a predefined rate to calculate your demand charges. For example, if the utility company charges $10 per kilowatt per month for demand, and your peak 15-minutes increment usage was 75 kilowatts, you will need to pay $750 in demand charges. 

Energy consumption is calculated by multiplying the current energy price during the billing period ($/kWh) with the energy consumption (kWh). In addition, energy demand is calculated by multiplying the maximum amount of power used over a specific interval (kW) with the relevant demand charge ($/kW). 

In other words, “xxx kW of demand * xxx $/kW = $ Monthly Demand Charge”.

3 Ways to Reduce Your Demand Charges

As we know so far, being mindful of your demand charges and understanding how to lower your peak demand needs can quickly reduce your costs.

  1. Reschedule Energy Operations: Reschedule the company’s most intensive energy operations to off-peak times of the day. It can be a great way to reduce demand charges and balance out your electricity usage.
  2. Sign Up For Load Control Programs:Many utility companies offer load control programs to lower the demand charges. These programs will require the company to authorize their peak loads management to the utility company. Then, the programs will help you switch to an alternate energy source during peak times. Therefore, they could prove beneficial and cost-effective to your business. 
  3. Renewable Energy:Some of the companies cannot shift their facility’s energy consumption. Demand charges can be reduced by applying solar power and solar battery storage system.

The commercial solar system can generate energy from the sunlight during peak usage hours. The battery can store the excess energy for later necessary uses, such as an intensive operation during nighttime or cloud coverage. Thus, flattening your energy consumption during those peak periods and ultimately paying less in monthly demand charges. Moreover, installing a solar battery storage system can provide valuable battery backup power in a grid outage, avoiding costly downtime and spoilage.


nRuiT, an advanced energy battery storage manufacturer, offers one-stop lithium energy storage system solutions for various fields, including residential, commercial, and industrial.

Our solar battery storage system can economize energy costs while boosting efficiency by saving energy during low-use periods and offering extra energy during peak time.