Energy 101: Peak Demand Charges On Your Electricity Bill

Peak demand charges are the most important part of an electric bill, but they are often overlooked (if anyone even looks at it).

In a previous post, we examined the best way to understand consumption charges on your electric bill. However, the second key part of an energy bill is the peak demand charges. Peak demand charges and on-peak charges can account for 30-70% of your total electric charges; ignoring these excessive rates can result in thousands of dollars spent on avoidable consumption.


Hold up. What’s Peak Demand?

Glad you asked!

Peak demand is the highest amount of energy you are consuming, usually over a 15-minute interval, over a month. Keep in mind that peak demand refers to the energy consumed at a specific moment, whereas consumption charges are calculated using the building’s overall kWh consumption during a billing period. The more frequently a building consumes bursts of energy, the more peak demand charges will affect your total energy bills.

Let me repeat that: peak demand charges are not affected by the building’s overall consumption. So, a property manager may take great measures to reduce total building energy consumption, but the building’s utility bills may still be high. Peak demand charges are often the unidentified culprit.

The peak demand rates vary greatly; they are often determined by region, utility provider, tariffs, and pricing structures for each utility. However, across the US, peak demand charges are one of the most expensive parts of the total utility bill.


On-Peak Hours vs. Off-Peak Hours

Some utility companies will charge different rates during different periods of energy consumption. During on-peak hours, many utilities will charge higher rates than off-peak hours. On-peak hours are a way for energy companies to account for the costs of having power generation equipment on standby in case there is a large influx of demand. These equipment are on standby to prevent spikes in demand that may overwhelm the grid and cause power outages.

Below, a screenshot of real-time energy data highlights the difference in consumption times. The pink shaded area highlights on-peak hours, while the white areas are the off-peak hours. For this building’s utility provider, peak hours are from 7am – 10pm. The building operator intentionally scheduled the building to turn on before peak hours (i.e. during the white shaded portion) because he is actually saving money by consuming more during off-hours than on-hours.




How do you calculate peak charges?

The two different “peaks” – on-peak charges and peak demand charges – are actually different portions of your utility bill.

Peak Demand Charges occur when your energy consumption “peaks” – that is, when your energy consumption reaches a high point during a 15-minute interval. Peak demand charges are calculated by multiplying the “peaks” in energy consumption by a higher rate than the normal consumption cost. While the charges range depending on your area and service provider, peak demand charges can be as high as $10/kWh. This will quickly run up your electricity bill.

On-Peak Hours Charges are the portion of your bill with a higher cost per kWh due to the time of day and season that you were consuming power. These are calculated by multiplying the amount of energy consumed during peak hours by the “on-peak” (i.e. higher) rate. Meanwhile, there may be “mid-peak” and “off-peak” rates as well that are calculated based on the time of use (TOU).

Without careful examination, a property manager may not notice these two sections of electricity bills even though both could be easily avoided.


Easy Ways To Avoid Peak Demand Charges

First, identify the periods of peak energy use. This can range greatly on the building and the way it is used. However, there are a few common ways to avoid peak charges:

  • Staggered start times: If you tend to have peak consumption at a particular time period, such as when you start your building, consider staggering your start times to reduce the actual peak in energy consumption.


  • Work towards the ideal energy curve: Avoid peaks in energy demand altogether by working toward a “flat” energy curve. This will sharply reduce the “high” points in consumption, which means you will have a significantly lower peak demand charge


  • Schedule peaks during off-peak hours: As in the screenshot above, you can schedule periods of high energy consumption during off-peak hours in order to have a lower overall energy bill.


  • Control your peaks: Peak charges are simply a reflection of your building’s consumption. They were implemented to provide market incentives to reducing energy consumption, but few realize they are being charged more. By taking control of how much you are consuming, you can easily avoid these steep energy costs.


Make the time to examine your energy bill. By taking a few extra steps you can easily identify both peak demand and on-peak charges to see how much extra money you are spending. With tools like a real-time monitoring system, you can utilize granular energy data to target times of high consumption and avoid unnecessary peak charges.

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