What is demand

If you are a large business, commercial or industrial customer, demand charges are usually a component of your electricity bill.

Your demand is calculated using a measure of the average electric consumption at your facility over a 15 minute interval.  Operating more electrical devices at the same time will increase your demand.

Why demand is important

It is demand that determines the investment networks must make to delivery electricity effectively.  That investment is recouped by sharing demand charges between customers, according to usage.

Your Transmission and Network Distribution Service Provider must design equipment capable of delivering the maximum amount of electricity that could be needed at any one time. Whether your consumption happens over 15 minutes, or months, electrical infrastructure must be sized to supply all the electricity you need at once.

Demand and Consumption


How much power you require at one point in time, measured in kilowatts (kW).


How much energy you use over a period of time, measured in kilowatt-hours (kWh) eg:  Let"s assume you have 10 x 100-watt lights.

To turn them on, you must draw (Demand) 1kW of electricity from the power grid.   Leaving them on for 2 hours will use (Consume) 2kWh of electricity.

What if only 5 lights were used, but for 5 hours. With only half the lights turned on, Demand is cut by 50% to 0.5kW. But because the lights ran for a longer time, Consumption increases.

So Demand measures your average rate of electricity use and Consumption is the actual amount of energy used.

Demand Charges (Billing) and measurement

When one business has greater demand than another, more robust electrical equipment is required to supply its electricity needs.  To recover the cost of equipment, network companies allocate demand charges to individual retailers like Active Utilities.

Demand can vary by customer and month.  For accurate measurement, special meters are used to track electricity flow.  Usually this is recorded at 15 minute intervals.

The 15 minute interval with the highest demand during the month is recorded for billing purposes.  Sometimes demand from previous months can also be factored into charges.

Demand charges are typically issued on the maximum demand value for a particular time period i.e. the highest demand measured during the peak period.

Depending on the network tariff you may be on, demand charges may be split into time of use periods.  Furthermore, demand may be measured in rolling periods e.g. highest demand for the last 12 months.

Demand Charges are a part of the Network Charges and are a regulated, non-negotiable cost.

Will switching providers avoid demand?

Not necessarily.  Network companies assess demand by business, industrial and commercial facility and levy those charges on to your electricity retailer.  Usually retailers factor in those costs into electricity pricing, thereby passing along the charge to customers.

Whether demand charges are explicitly stated each bill, contract bundled or otherwise included, varies by retailer according to billing systems, Terms of Service and contract details.

Reducing demand charges

There are two main strategies to reduce demand:

  • Change what equipment is run.
  • Change when the equipment is run.


Demand can be reduced by operating less devices simultaneously.  This lowers the combined effect of multiple electrical draws.  Upgrading to high efficiency equipment also helps reduce demand.  Balancing out usage spikes by running devices at different times of the day will also assist.

Always exercise caution when making operational changes.  Lack of planning can lead to equipment failure and other issues.

Be aware of unique events that may affect demand, like:

  • Facilities performing fire-pump tests
  • Plant start-up

Remember, you are responsible to ensure testing or restart operations do not produce a higher demand.  So review your staging strategy to avoid increased demand after a power outage.