Peak Demand charges explained
Residential homes across Australia with a smart meter installed may have noticed a new demand charge appearing on their electricity bill. Certain retailers have introduced a capacity demand charge, adding to standard tariffs for electricity consumption and supply charges. If you are a business owner this is not something new as this charge has been present for several years for commercial premises.
Bill above shows a home energy bill with a peak demand charge.
In nearly all cases the introduction of this charge has resulted in a slightly reduced peak rate charge for the power consumed from the grid, which is a bonus. However, the new charge may result in a higher monthly or quarterly bill than before. Depending on your location this charge may vary seasonally as the demand on the grid fluctuates.
The capacity demand charge is a daily charge that reflects a customer’s peak time usage in a 30-minute window between the hours of 4pm and 8pm (This may vary with some areas so treat this as a guide only). The easiest way to understand this charge is that it is not the duration of time that power is consumed but the load due on an appliance (or several appliances) over a short duration of time. This charge is calculated per kWh taken from the grid, per day multiplied by the number of days in the billing cycle.
As an example, if you are charged 25c per kWh demand tariff and the maximum demand is 4kW in a single 30-minute window over a 90-day period, an additional $90 will be added to your bill.
25c x 4kW = $1 per day
$1 per day x 90 days in the billing cycle = $90
This means that you only have to hit this peak demand once during the whole billing cycle before it resets and then applies for the next cycle.
Why is this charge being introduced?
The goal is to alleviate stress on the grid. By introducing these tariffs, customers will endeavour to adjust their habits to avoid excess charges. The seasonal charge applied during Summer coincides with exceptionally high grid demand.
How to reduce peak demand
This may take a little forward thinking and possibly a bit of luck in some cases! Where possible avoid simultaneous usage of appliances, e.g. if you are cooking a meal and using multiple electric hobs and the oven/microwave possibly use one at a time rather than all together.
The main culprits will be air conditioners and hot water systems for homes. With a professionally sized and installed solar system we can install a Catch Solar relay to heat your hot water through peak solar hours to avoid this peak demand window. A/C may be trickier as we often return home from work and/or school right as we enter this time period. Is it possible to set you’re A/C on a timer and begin to cool the house down earlier? A reputable solar installer will be able to walk you through when and how this can be done.
The caveat to this is the charge is taken from the highest 30-minute window through a billing cycle. It only takes one window across 90 days for a home to be slugged with this charge. If the A/C is turned on at 6pm at the same time as the oven, the load could be in excess of 5-6kW during Summer.
Are batteries the answer?
Possibly is the short answer. A quality battery can be set to discharge power at specific times, ideal for this demand charge. Batteries have a certain discharge rate which may assist in covering much of the demand you experience. A properly sized PV and battery system with load shifting will minimise the charges accrued through this new tariff.
Here is an example of a local 6.6kW PV system with 10kWh of battery storage:
At 6pm the demand measured is 3.708kW, with all but 16W of power being supplied from the battery. If we use the assume this is the highest reading during the billing cycle and use the same calculation on peak demand, this would result in a charge of $0.927 (3.708kW x $0.25) per day x 90 days = $83.43.
This improves the saving and ROI experienced with the installation of a battery to compliment the reduced grid usage and potentially a per day credit for being part of a virtual power plant.
Peak demand charges for homes are new and can be quite confusing and costly. You can reduce these charges by using electricity more intelligently, installing consumption meters so you can see how you use energy and by installing solar and battery systems.
Demand charges are not going away and if anything they will probably increase and represent a larger percentage of your overall bill as time goes on.
We have lots of resources that can help with these questions in our Learn About Solar section.
Also try our solar calculator to see how much you can save!
Here are some links worth checking out: