Most residential electricity bills are dominated by a usage charge, cents per kilowatt-hour consumed, plus a daily supply charge. Many commercial and industrial electricity tariffs work differently: alongside usage charges, they include a demand charge, based not on how much energy was used in total, but on the single highest rate of demand recorded during a defined peak window within the billing period. Understanding this distinction is often the single most valuable piece of energy literacy for a commercial operator trying to manage power costs.
How demand is actually measured
Demand is typically measured in kilowatts (kW) or kilovolt-amperes (kVA), and represents the rate of electricity draw, averaged over a short interval, commonly 30 minutes, rather than total energy consumed. The demand charge for a billing period (often monthly) is usually based on the single highest such interval recorded during that period, sometimes restricted to a defined peak time window (for example, weekday afternoons). This means one brief spike, several pieces of equipment all starting up around the same time, for instance, can set the demand charge for the entire billing period, even if it lasts only 30 minutes out of many thousands.
Why this catches commercial clients off guard
Because demand charges are driven by a peak moment rather than cumulative usage, a commercial site can genuinely reduce its total energy consumption year over year while still facing a high demand charge if its peak moments haven't changed. This runs counter to the intuitive assumption that 'using less energy always means paying less'. It's one reason a proper commercial energy review looks specifically at interval demand data, not just total kWh consumption, when assessing where cost-reduction opportunities exist.
Common causes of demand spikes
- Multiple pieces of equipment (compressors, HVAC units, motors) starting simultaneously, particularly after a scheduled shutdown period.
- Equipment with high inrush current at startup, even if its running load is comparatively modest.
- Seasonal peaks, such as air conditioning load on the hottest days of summer.
- Poorly staggered scheduling of energy-intensive processes across a working day.
Approaches to managing demand charges
Demand charge management generally falls into a few categories: operational changes (staggering equipment startup times, scheduling energy-intensive processes outside of known peak windows), equipment changes (soft-start systems that reduce inrush current spikes), and battery storage, which can be configured to discharge specifically during periods approaching a facility's historical peak, reducing the demand drawn from the grid at that critical moment, a strategy often called peak shaving.
A commercial battery sized and controlled for peak shaving doesn't necessarily need to be sized to cover a commercial site’s entire load, it needs to be sized and controlled to shave the top of the demand curve during the specific windows that determine the demand charge. This is a genuinely different sizing exercise from a battery designed purely for daytime solar storage and evening use, and the two goals (self-consumption and peak shaving) should both be discussed explicitly if a commercial operator is pursuing a battery investment for both reasons.
Reading your own bill and interval data
Most commercial electricity retailers can provide access to interval demand data on request, and many bills itemise the demand charge as a separate line item with the peak kW/kVA figure that triggered it. Reviewing several months of this data, ideally across different seasons, gives a far clearer picture of where a commercial site’s true cost drivers sit than looking at the total bill amount alone.
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This article is general information, not financial or electrical advice. Program rules and eligibility change, confirm current settings with the relevant scheme or your Esena engineer before making decisions. Last reviewed: August 2026.