When most large businesses get their electricity bill, they see two main things: how much the bill costs, and how much power they’ve used.
But there’s another line item that quietly sits there, potentially adding thousands to your annual electricity bill — your demand charge.
Few businesses know what a demand charge is or how it works, but even fewer realise that they can easily reduce these costs. That’s where our team at Choice Energy can help.
What Are Demand Charges?
Demand charges are based on your business’s peak power usage — that is, the highest amount of electricity (in kilowatts, kW) you draw from the grid at any one time. Think of it like your energy "speed limit": you’re being charged for the top speed you hit, not how far you drove.
To put it simply:
You could use 1,000 kWh in a month steadily and pay one rate — but if you use the same 1,000 kWh in a few intense bursts, your demand charges could mean you pay significantly more.
Demand charges are another form of network tariff. Like most network tariffs, demand charges aren’t set by your energy retailer; your energy distributor sets them.
The reason for these costs is that the power grid must always be ready to deliver power, even during the biggest surges. So if your site spikes to a high level of usage, even briefly, the grid has to reserve capacity for that possibility at all times.
Demand charges reflect the cost of maintaining the infrastructure to support your business's power needs, as well as to encourage you to spread out your electricity usage, reducing load during peak times.
Fixed vs Variable Demand Charges
Demand charges can come in different forms depending on your network tariff:
- Fixed demand charges are based on an agreed or historical demand level.
- Variable demand charges are based on your actual peak usage during a set period (e.g. 15- or 30-minute intervals during business hours).
The Biltong Man Case Study
The Biltong Man, a multi-site food manufacturing business, was facing complex energy bills and rising electricity and gas costs. Without real-time visibility into their usage, they were missing out on opportunities to save on their demand charges and inefficient tariff structures.
So we stepped in with a full energy health check. We implemented real-time metering to track demand, conducted detailed network tariff reviews and demand assessments, and validated bills across all of their sites. As a result, The Biltong Man unlocked more than $70,000 in annual savings — and we’re continuing to monitor for even more.
The Biltong Man is a perfect example of how effective our support can be. Our expert team can also help businesses in:
- manufacturing
- cold storage & food production
- hospitality
- multi-site energy procurement
How Do Demand Charges Add Up?
For many commercial and industrial businesses, demand charges can be a major cost driver. In fact, we’ve seen businesses overpay by $5,000 to $20,000+ per year due to having unoptimised demand profiles.
Here are some common causes:
- Outdated or “legacy” tariffs: Businesses that have grown or changed operations but haven’t updated their network tariff may be charged based on old assumptions, not current usage.
- Equipment causing usage spikes: Machinery like fridges, welders, or ovens can create sharp spikes in energy demand. This problem is especially prevalent for businesses that start up all of their equipment at the same time.
- Poor power factor: Sites with inefficient power usage (low power factor) can appear to draw more power than they actually use — inflating demand charges. Power factor correction can help bring these costs down.
If you’ve never looked into your demand structure, the chances are, you’re paying more than you need to. We’ll help you navigate the web of different charges and help spot overcharged energy bills for you along the way.
Demand Analysis Process
We take a proactive approach to tackling demand charges. Our 3-step demand analysis process is simple, effective, and doesn’t require you to change energy retailers:
- Analyse interval data: We start by reviewing your site’s interval data to identify when and how your peak demand is occurring.
- Compare available tariffs: Using that insight, we assess whether a better network tariff or demand charge structure is available for your specific usage profile.
- Manage the switch: If a better option exists, we’ll work with your electricity distributor to action the change, with no service disruption to your supply.
We’ve helped hundreds of large Australian businesses reduce unnecessary demand charges through data-driven analysis. It worked for them, and it’ll work for you too.
Are Demand Charges Costing Your Business?
If you’ve never looked closely at the demand charges on your electricity bill, the best time to do so is right now.
Start by checking your bill for line items related to demand charges or network tariffs, and take note of your peak demand (kW) figure. That number could be costing you thousands more than it should.
Want to know for sure?
Our customers benefit from a free network tariff and demand assessment of their current setup, identification of any unnecessary costs, and help them make smarter decisions — no investment and no retailer switch needed.
