Jordan A. Davis

When it comes to electricity bills, most commercial and industrial customers simply accept the charges and put a plan in place to accommodate them. However, by understanding the breakdown of their energy usage, many businesses will have the opportunity to generate substantial savings.

According to a recent report from the National Renewable Energy Lab (NREL), utility demand charges can account for between 30 and 70 percent of a commercial and industrial customer’s electricity bill.

So, Exactly What Are Demand Charges & Why They Are Important?

In most cases, utility bills for commercial customers are broken down into your energy charges and your demand charges. Energy charges are a simple calculation that refers to the amount of energy you used over the billing period multiplied by your energy rate.

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However, the other charge on that same bill is a bit more complicated. Enter demand charges.

To understand demand charges, let’s first take a look at how commercial and industrial customers pay for their electricity. Essentially, demand charges reflect the maximum amount of power that a customer used over a specific interval—usually 15 minutes—during a billing cycle. These apply mostly to commercial customers since they most often require higher power demands at peak times as opposed to residential customers.

While each utility can have its own specific billing process, they generally state the maximum amount of power demand that a customer is allotted and if that amount is broken over an extended period, then increased demand charges may apply.

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There are also multiple types of demand charges. For instance, charges will increase during peak demand hours and lower during off-peak demand hours.

As you can see, demand charges play a significant factor in commercial and industrial electric bills. Now that you’ve developed a good hold on the impact of demand charges, it’s important to know how energy storage and renewables like solar can generate substantial and reliable savings in your monthly electric bills.

In fact, the addition of energy storage can help reduce those charges while also providing critical backup power, adding further value to any commercial industrial facility. Click here to learn how.