Understanding Electricity Demand Charges: What They Mean and How They Affect Your Bill
Published October 23, 2026
A business in Australia with an inefficient demand profile can unknowingly spend an extra $5,000 to $20,000 or more each year on just the demand charge portion of the bill.
For most big businesses when it comes to the electricity bill, it’s really just about two things – how much the bill is and how much power has been consumed. But then there is another aspect of the bill which quietly adds several thousand dollars to the electricity bill each year – the demand charge.
What is a demand charge and how does it work? Few businesses are aware of it, let alone the fact that these costs can be reduced substantially.
What Are Demand Charges?
The demand charge is based on the maximum demand (i.e., the peak demand) of your business for electrical power in kilowatts (kW). You can think of it as the “speed” of electricity consumption that you reach; the charges are based on the speed rather than the distance.
To put it simply, It is quite possible to consume 1,000 kWh per month and be billed at one price but, when the consumption pattern changes and the total 1,000 kWh is consumed in a few intense intervals, the demand charge may end up increasing the total bill considerably.
The fact is that the power grid must always be able to provide enough electricity for the maximum consumption. This means that whenever you reach a certain level of maximum consumption, even once, the power grid will reserve the capacity needed for such demand.
The charges for demands show the costs associated with building the necessary infrastructure and spreading out electricity consumption.
| Feature | Usage charges | Demand charges |
|---|---|---|
| Based on | Electricity consumed (kWh) | Peak demand (kW) |
| Measures | Total energy used | Maximum power demand |
| How to manage | Reduce overall electricity consumption | Avoid simultaneous peak loads |
| Appears on | Some business electricity tariffs | Applicable business tariffs |
Note: Actual tariff structures and demand-charge calculations vary by electricity network, tariff and retailer.
Fixed and Variable Demand Charges
The form of demand charges may vary depending on the network tariff you choose:
- Fixed demand charges depend on agreed or historical demand level;
- Variable demand charges depend on your real-time demand peaks over a specified period (e.g. 15- or 30-minutes intervals during business hours).
What Are the Factors Driving Demand Charges?
As a commercial or industrial enterprise, for example, you should consider that demand charges can significantly impact the total cost of electricity you use. Indeed, we have encountered customers being overcharged by $5,000 to $20,000+ annually because of sub optimal demand profile.
Some examples of common reasons include:
- “Legacy” tariffs: Those firms who have undergone growth and changes in their activities but haven’t updated their network tariff are being charged according to the outdated figures, not actual demand.
- Demand increases caused by machinery: Equipment such as refrigerators, welding machines, ovens and other machinery may lead to high demand for power. Such demand increase is particularly widespread in those companies who start all of their machinery at once.
- Low power factor: Inefficient use of power on the site results in higher demand charges for power consumed. In order to fix this situation, power factor correction should be done.
If you’ve never checked your demand structure before, there is a great chance that you are overpaying. We will assist you in exploring the whole web of various charges and detect overcharged energy bills for you.
Demand Charges – Are They Hitting You Where It Hurts?
If you have not taken the time to analyse the demand charges on your electricity bills before, the time to do so is now. First, look at your electricity bills to find items that are labelled with the term “demand charges” or “network tariffs,” and check your peak demand (kW) numbers. They might be costing you much more than they should.
Frequently Asked Questions About Electricity Demand Charges
Electricity demand charges are fees that some Australian businesses pay based on their highest level of electricity demand, measured in kilowatts (kW), during a specified period. These charges can vary depending on the network tariff, retailer and metering arrangements. They are separate from charges based on total electricity consumption.
Demand charges are generally calculated by multiplying the applicable demand rate by the measured or recorded peak demand in kilowatts (kW). The measurement period and calculation method depend on the tariff. Some tariffs use the highest demand recorded during a billing period, while others may use historical demand or specified time periods.
Businesses can reduce demand charges by avoiding the simultaneous operation of high-power equipment, staggering machinery start-up times and shifting flexible activities away from peak demand periods. Reviewing electricity bills, monitoring demand data and checking whether the current network tariff suits the business's usage pattern can also help identify potential savings.
Electricity usage charges are based on the total energy consumed, measured in kilowatt-hours (kWh). Demand charges are based on the maximum level of power drawn, measured in kilowatts (kW), under the applicable tariff rules. A business can consume relatively little electricity overall but still incur high demand charges if several energy-intensive machines operate simultaneously.
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