Demand is a different thing from usage
Almost everyone reads an energy bill the same way: you used this many kilowatt-hours, you paid this much per kilowatt-hour. On a lot of business bills that is only half the story, because a second charge is sitting underneath it that works on a completely different principle.
A demand charge is billed on your highest measured power draw during the period, not on how much energy you consumed in total. It is measured in kilowatts (kW) or sometimes kilovolt-amperes (kVA), and it is usually taken as the maximum averaged over a short window — commonly 15 or 30 minutes — at some point in the month or quarter.
The practical consequence catches people out. Two businesses can consume exactly the same number of kilowatt-hours in a quarter and pay very different amounts, because one of them spread that consumption evenly and the other put a large share of it into one short spike. The one with the spike pays more, and no amount of using less overall will fix it if the spike stays.
Why it exists at all
Demand charges are a network cost passed through to you. Poles, wires, transformers and substations have to be built to carry the worst moment they will ever face, not the average. A network that must survive a 4pm summer peak has to be sized for that peak even if it sits half-idle the rest of the year.
Charging on demand is the network billing you for the capacity it holds in reserve for you, rather than the energy that flows through it. That is why the charge does not disappear in a quiet month: you are paying for headroom, not consumption.
What it looks like on your bill
- Maximum demand / peak demand
- The highest average power draw recorded in the period, in kW or kVA. This is the number the charge is multiplied by.
- $/kW/month or $/kVA/day
- The demand rate. Multiply it by your measured peak (and the days or months in the period) to get the charge.
- Demand window
- Many tariffs only measure demand during defined hours, often weekday afternoons and evenings, and sometimes only in summer. A peak outside the window may not be charged at all.
- Ratchet
- Some tariffs remember your highest peak for up to twelve months and keep charging on it. One bad afternoon can then follow you for a year. Check whether yours ratchets.
- kVA vs kW
- kVA includes reactive power, which motors and older equipment draw without doing useful work. If you are billed on kVA, poor power factor costs you money even at the same real load.
Why most comparisons quietly ignore it
To price a demand charge properly you need to know the customer's actual peak in kW. That figure does not appear on a residential bill, and it cannot be derived from total consumption — the whole point is that it is independent of the total.
So a comparison tool has three options. It can ignore demand tariffs entirely. It can show them but cost only the energy component, which makes them look far cheaper than they are. Or it can ask for the demand figure and price it.
The middle option is the dangerous one, because a demand plan costed on energy alone can easily appear to be the cheapest thing on the market while being one of the most expensive in practice. As at 1 August 2026 our catalogue held **2,362** plans carrying a demand charge — and a large share of them do not have the word "demand" anywhere in the plan name, so filtering by name would not find them.
Our own approach: for households we exclude demand tariffs from the ranking entirely and say how many were hidden, because a household almost never knows its peak. For business we take the demand figure stated on your bill (or derive it from interval data if you upload it), price it in, and where we genuinely cannot price it we show the plan with the charge flagged as unpriced rather than costing it at zero.
How to actually reduce a demand charge
- Find your measured peak on the bill first — it is usually printed in kW or kVA near the demand charge. Without it you are guessing.
- Work out what caused it. A single large motor starting, several pieces of equipment switching on together at open-up, or HVAC ramping on a hot afternoon are the usual culprits.
- Stagger start-up. Bringing plant online in sequence rather than all at once can cut the peak substantially for no capital cost at all.
- Shift what is flexible out of the demand window. Charging, pumping, heating and batch processes can often run outside the measured hours.
- Check whether your tariff ratchets before you relax. If it does, one uncontrolled peak undoes a year of good behaviour.
- If you are billed on kVA, ask about power factor correction. Improving power factor lowers kVA without changing what you actually produce.
- Only then compare plans. A lower usage rate on a tariff with a punishing demand rate can leave you worse off.