Peak Demand Charge Calculator

Commercial and industrial electricity bills often include two separate charges: a usage charge (for kWh consumed) and a demand charge (for the peak rate of consumption during the billing period). Residential customers rarely see demand charges, but small businesses often do, and it can easily be 30 to 60% of the total bill.

What is a demand charge?

The utility measures your peak power draw (in kilowatts) at 15-minute intervals throughout the month. The highest 15-minute average becomes your billing demand. You pay for that peak whether or not you use it again.

Example: a restaurant draws 80 kW during lunch prep for 20 minutes one day. The rest of the month it averages 40 kW. The billing demand is 80 kW, and the demand charge applies to the full 80 kW.

The formula

Demand charge = peak kW x demand rate ($/kW-month)

Usage charge = monthly kWh x usage rate ($/kWh)

Total bill = demand charge + usage charge + fixed fees

Typical demand rates run from $5 to $25 per kW-month depending on the utility and rate class. A 50 kW peak at $15/kW adds $750 to the bill, and you pay it identically whether you touched that peak once in the month or every single afternoon.

Load leveling strategies

Because demand charges bill on the peak, flattening that peak saves money even if total energy use stays the same. Strategies include: staggered equipment startup (avoid simultaneous motor starts), battery systems that discharge during peak loads and recharge overnight, shifting large intermittent loads (ovens, compressors) to off-peak, and on-site solar to shave peak draw during daytime hours.

A 10 kW demand reduction at $15/kW-month saves $150 a month, $1,800 a year, which justifies real capital spending on load management. The part worth dwelling on: none of that requires using less energy. Only using it less abruptly.

Load factor tells you whether it is worth trying

Load factor is your average draw divided by your peak. Run at 20% and you are paying for capacity you touch for minutes a month, which is exactly where peak shaving pays for itself. Run at 80% and there is barely a peak to shave, so the only route to a smaller bill is genuinely using less. The calculator works yours out and says which case you are in.