What is a demand charge?

A demand charge bills you for the single highest rate of power use during the month, measured as a 15-minute average in kW, separate from total energy in kWh. It covers the utility's cost to build capacity for your peak, so a brief spike can dominate a commercial bill.

How is the demand charge calculated?

The demand charge is the peak demand in kW multiplied by the demand rate in dollars per kW-month. A 200 kW peak at 18 dollars per kW-month is 3,600 dollars for the month, regardless of how much energy you used.

Why does a 15-minute spike cost so much?

Demand is the highest 15-minute average, so even a short surge from starting large motors or chillers can set your billed peak for the entire month. Staggering start-up of big loads avoids creating an unnecessary peak.

How does battery storage reduce demand charges?

A battery discharges during your peak intervals to flatten the demand the utility sees, lowering the billed peak kW. The savings equal the kW shaved times the demand rate every month, which is why peak-shaving batteries pay back through demand-charge reduction.

Is the energy charge included here?

No. This tool isolates the demand (kW) portion only. Your total bill also includes the energy charge for kWh consumed plus taxes and fixed fees. Reducing peak demand cuts the demand charge without necessarily reducing total energy used.

Electrical Demand Charge Calculator

On a commercial electric bill the demand charge — billed on your single highest 15-minute peak in kilowatts — often rivals the energy charge for total kilowatt- hours. This calculator turns your peak demand and utility rate into a dollar figure and shows how much you save by shaving that peak.

How it works

The demand charge is a simple product, and savings scale with the peak you remove:

demand charge   = peak demand (kW) × demand rate ($/kW-month)
shaved peak     = peak demand − reduction
new charge      = shaved peak × demand rate
monthly savings = reduction × demand rate
annual savings  = monthly savings × 12

Because the charge depends only on the peak, even a brief surge sets the cost for the whole month. Flattening that peak — by shifting flexible loads or discharging a battery during peak intervals — lowers the billed kW directly.

Example and tips

A site peaking at 250 kW on a 16 dollar per kW-month tariff pays 4,000 dollars in demand charges that month. Shaving 40 kW with a battery saves 640 dollars a month, or 7,680 dollars a year, before any energy savings. Pull your interval data to find when the peak occurs, then target the specific loads driving it — staggering chiller and motor starts is often the cheapest first step.