Commercial Demand Charge Calculator
Demand charges can be 30–50% of a commercial electric bill — and unlike energy charges, they're based on your single highest peak, not total usage. Enter your numbers to estimate what you're paying and what peak reduction could save.
Estimates only. Actual demand charges depend on your utility tariff, ratchet clauses, coincident-peak billing, and load factor. Reducing peak demand by 20% at your inputs would lower your billed peak from 500 kW to 400 kW.
What Is a Demand Charge?
A demand charge is a fee based on the highest rate at which your facility drew power during a billing period — your peak demand, measured in kilowatts (kW) over a 15- or 30-minute interval. Where an energy charge (¢/kWh) bills you for total energy used, a demand charge bills you for capacity: how much of the grid you needed available at your busiest moment. Two businesses can use the same total kilowatt-hours in a month yet pay very different demand charges if one has spiky, peaky load and the other runs steady.
How the Calculation Works
The core formula is simple:
Monthly demand charge = Peak Demand (kW) × Demand Rate ($/kW)
A 500 kW peak at an $18/kW demand rate is $9,000 per month — $108,000 a year — before you've paid for a single kilowatt-hour of energy. That is why controlling peak demand is often the single highest-leverage move on a commercial bill. Watch for tariff wrinkles that make it worse:
- Ratchet clauses: some tariffs bill a percentage of your highest peak from the prior 11 months, so one summer spike inflates charges all year.
- Coincident peak (CP) billing: in markets like ERCOT (4CP) and PJM, transmission and capacity charges are set by your demand during regional peak hours — reducing load in those specific windows saves the most.
- Time-of-use demand: higher demand rates during on-peak periods.
How Businesses Reduce Demand Charges
- Load shifting & staggering: sequence large equipment startups so motors and chillers don't all spike at once.
- Battery storage (BESS): discharge stored energy during demand spikes to cap the billed peak. See our commercial battery storage ROI guide.
- Demand response & controls: automated peak-shaving via building management systems. See demand charge management.
- Coincident-peak avoidance: curtail during predicted regional peaks (4CP in Texas, 5CP transmission in PJM).
The calculator above models a flat percentage peak reduction. A real reduction strategy depends on your load profile, tariff, and operations. For related reading, see peak demand management, time-of-use rates, and the full demand charges guide.
Want a Real Demand-Charge Analysis?
Send us a recent bill and our advisors will identify your demand-charge exposure, ratchet risk, and the highest-ROI ways to cut it — alongside a competitive supply rate review.