Quick answer
An electricity-bill component based on a tariff-defined power-demand quantity, such as maximum interval-average grid draw, with applicable time windows, ratchets, minimums and units.
Answer: A demand charge is an electricity-bill component based on a tariff-defined measure of power demand, often a maximum interval-average grid draw during a billing period. It differs from energy charges for kilowatt-hours. The billed quantity can include time windows, ratchets, minimums or other adjustments. Solar or storage savings depend on changing that billed quantity under the actual tariff, not simply reducing total annual energy use.
Power and energy are different billing quantities
A load drawing 200 kW continuously for 15 minutes consumes 50 kWh. A tariff using that quarter-hour’s average power can record 200 kW demand. This is not the same as an instantaneous transient, and not every tariff uses a 15-minute interval. Obtain the actual averaging interval, meter boundary and billing rules.
SCE’s business time-of-use guidance distinguishes facilities-related and time-related demand charges. Its explanation is a utility example; the customer’s current applicable tariff controls the project calculation. Do not use a generic national rate table as a current local price.
Read each demand component separately
| Component or provision | What to identify |
|---|---|
| Non-coincident/site maximum | Which measured demand sets the period’s maximum, regardless of system peak timing |
| Time-related demand | Defined billing windows, seasons, holidays and eligible interval maximums |
| Coincident demand | Demand corresponding to a defined utility or system peak event; not automatically synonymous with on-peak-window demand |
| Ratchet or minimum | Historical reference, lookback period, percentage and other billed-demand floors |
| Unit and adjustment | kW versus kVA, power-factor treatment and applicable tier or other calculation |
A bill can contain several components. Reducing one peak does not necessarily reduce all of them. Calculate each under its own rules before adding savings.
A scoped monthly example
Assume a simple demand component of $15 per billed kW, with no ratchet, minimum or additional demand component. An original 200 kW billed peak costs $3,000. If the highest qualifying demand across the entire billing period falls to 140 kW, the charge becomes $2,100, giving $900 savings for that period.
If storage reduces one 200 kW interval to 140 kW but a different interval remains at 190 kW, the billed maximum is 190 kW. Under the same assumed rate, the charge is $2,850 and savings are only $150. One successful discharge does not prove the monthly peak has been reduced. Multiplying one month’s savings by twelve is not a validated annual forecast.
A separate hypothetical ratchet can impose a floor of 80% of a 400 kW historical reference: 320 kW. If the current measured maximum is 200 kW and this floor applies, billed demand remains 320 kW. The percentage and duration are illustrative, not a universal tariff rule.
When PV or storage helps
PV can reduce net grid draw when production coincides with the intervals that establish billed demand. Its impact varies with load timing, weather and tariff rules; it is neither universally ineffective nor guaranteed to save. Storage may provide peak shaving, but needs sufficient discharge power, energy, state of charge and control performance throughout the relevant intervals. Charging can create another peak.
A battery’s kW rating does not establish how long it can support a reduction. A sustained 60 kW reduction for an assumed half-hour requires 30 kWh delivered at that boundary, before separately considering storage losses and reserves. Equipment and tariff constraints still need validation.
Analyze the actual bill and interval data
Obtain the current tariff, account rate class, billed history and suitably resolved interval data. Align PV and load timestamps and replicate the pre-project bill before comparing alternative dispatch scenarios. Hourly averages may conceal a shorter interval peak; monthly kWh totals cannot locate it.
Record peak intervals, missing data, seasons, ratchet history, storage constraints and sensitivity cases. Designers should use these inputs in the financial model. Installers should validate metering and controls against the approved design and manufacturer procedures. Sales teams should show the demand component and assumptions rather than promising a universal reduction percentage or exact software-generated savings.
Demand response is a related program or price response, not the same billing mechanism. Participation may interact with peak shaving, backup reserves and other services; check program restrictions before adding every value stream together. For software evaluation, ask to demonstrate the actual tariff and interval bill calculation.
Common questions
Is demand charge based on total kWh?
No. It uses the tariff’s defined power-demand quantity; kWh energy charges are separate.
Is every on-peak charge a coincident demand charge?
No. A time-window maximum and demand at a defined system peak are different measures.
Can solar reduce demand charges?
It can when output reduces the qualifying billed demand. Analyze timing and tariff rules rather than assuming a fixed result.
Does reducing one peak guarantee monthly savings?
No. Other intervals, minimums or ratchets can still determine billed demand.
Related Glossary Terms
About the Contributors
CEO & Co-Founder · SurgePV
Keyur Rakholiya is identified by SurgePV as its CEO and a company co-founder. His SurgePV author page lists only role information that can be tied to the public profile below; credentials, project totals, testing claims, media appearances, and speaking engagements are not asserted without retained evidence.
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