Understanding the Demand Charges on Commercial Electric Bills

Understanding each line item on your business’s SDG&E bill isn’t always easy. After all, the more difficult it is to understand for the customer, the better for the utility — not every business owner has the time to call customer support for a more in-depth explanation. We will be going over how demand charges work, how to combat against them, and how to save money on your commercial electric bill.

What Are Demand Charges?

Demand charges are peak usage charges based on your business’s maximum electricity load in a given month — the highest amount of electricity delivered to your business at any given time. If a business uses large amounts of energy in short periods of time, demand charges will increase. If the energy usage is more consistent throughout the month, demand charges will likely be a lot lower.

There are three main components that comprise an electric bill for a commercial customer; electricity used, time of usage, and their highest demand for the electricity. The electricity that is used is measured in kilowatt-hours, and the rate is based on the time the energy is being used. Demand charges, on the other hand, are an additional fee you pay based on the utility having to deliver a spike of energy to your business that is outside of your normal usage. Though it may seem like all magic and wizards, there is a lot that goes into the delivery of energy when a spike in demand is required.

Additional Information About Demand Charges

Not All Businesses are Affected by Demand Charges

If your business is consistent with its energy usage — your usage doesn’t see any steep spikes — chances are you don’t see any drastic changes on your bill month-to-month. Here are some examples of common spikes in your energy demand:

• The office is hot, so you decide to flip on the A/C.
• You turn on extra unneeded lights.
• You’re running multiple machines/tools simultaneously that you usually wouldn’t.
• You add a few extra computers to your workforce.

Remember, your demand charge is based on the highest amount of power reached during any 15-minute average during the billing period. Here is a great example that helps understand the difference between a business with high demand and with a lower consistent demand:

To help understand the concept of Demand, consider this. Business “A” is open for 8 hours a day. It uses an average of 2400 kWh per day. 2400 / 8 hours = 300 kW. Business “B” also uses 2400 kWh, but its facility is open 24 hours per day. 2400 / 24 = 100 kW. From the utility standpoint, it is much more expensive to generate Business “A’s” 300 kW than it is to generate “B’s” 100 kW, so they charge “A” a Demand Charge (because the facility ‘demands’ the use). So Business “A’s” Demand Charge may look something like this: for every kW required over 100 kW, the utility will charge $1.75 per kW. In this case, Business “A” would be paying a Demand Charge of $350 (200 kW x $1.75). Here is how their bills would compare:

Business “A”
Usage 2400 kWh @ $0.04 = $96.00 (they receive a lower kWh rate if on a Demand Rate tariff)
Demand Charge = $350.00 (200 kW x $1.75)
Total bill: $446.00

Business “B”
Usage 2400 kWh @ $0.075 = $180.00

As you can see, Business “A” has a higher bill easily caused by the Demand Rate; the Demand Rate is a VERY significant part of an electricity bill, and can often times be punitive. It is vitally important to be able to monitor and measure Demand. TED keeps up with the Demand Rate in real time and is able to send alerts via text message or email to advise of an impending increase, thus allowing the consumer to make changes to their usage to keep the Demand Rate from increasing.

SDG&E Gives Another Great Explanation in this Video:

3 Steps to Reducing Demand Charges

Demand charges are put in place by the utility in order to encourage business customers to find ways to reduce their energy usage. It is more work for a utility to meet high demand, so naturally they are going to charge those customers more. Here are 3 tricks to reducing demand charges.

1. Be Mindful of Energy Usage

The quickest and most inexpensive way to reduce demand charges is to be mindful of your usage. There are always ways to reduce your business’s energy usage:

• Swap out lighting with more efficient bulbs.
• Turn off lights that don’t need to be on.
• Require each employee to shut down their computers at the end of each workday.
• Be sure to turn off the A/C or heater when nobody is there.
• Invest in better insulation and darkening blinds to keep cool weather in.

Every business is different and has their unique ways they can help reduce energy usage. Find out the energy needs for your business, map out a plan to reduce, then put your plan into action.

2. Invest in a Solar Energy System

Another great way to bring down those demand charges is to invest in a solar energy system. There is a common misconception about commercial solar being “too expensive” or “hard to get.” Like residential solar, commercial solar is easy to obtain for little to no money upfront, and is even more beneficial than home solar.

• Generate energy from the sun during those peak usage hours.
• Balance out your demand from the grid during the daylight hours.
• There is no disruption to your business during the installation process.
• It’s great for showing your customers that you’re helping work toward a healthier planet. Commercial buildings with solar greatly decrease carbon emissions.
• Get a Federal Solar Investment Tax Credit that will greatly reduce your taxes owed.
• Once the switch is flipped on your solar, you will begin seeing immediate cash flow savings.

Despite popular belief, solar is an inexpensive investment for a business looking for a ROI. Compared to five years ago, the price of solar is half of what it was. If you inquired about solar more than a couple years back, we urge you to contact us today for a quote. The price per watt is at an all-time low, so now is the time to invest in that solar energy system.

3. Implement Energy Storage

If you’re really looking to eliminate demand charges, energy storage would be the way to do it. If you’re already generating a majority of your energy via solar, chances are you will still experience demand charges due to cloudy days. You can prevent your energy usage from peaking — you can keep your usage level — by utilizing energy you have stored.

• Be in control of your energy and your energy usage.
• Store energy for the times when your solar panel system isn’t generating.
• Optimize your stored energy to be used when your demand is highest.
• Keep the energy you pull from the grid at a consistent level.

Bundled with a solar energy system, energy storage becomes the best way for a business to eliminate demand charges. With demand charges constantly on the rise due to lowering energy costs, the benefits of both solar and energy storage become more apparent.