Demystifying Demand Charges: Maximize your solar ROI further

Although electricity rates are lower in summer, you might notice a steady rise in your energy bills all thanks to demand charges, which are proportional to your energy usage during peak demand. Read on to delve deeper into demand charges and learn how to manage them effectively.

What are Demand Charges? 

Demand charges are designed to cover the substantial infrastructural investments electric utilities make to maintain massive distribution and transmission systems. Unlike consumption charges (based on total kWh), demand charges track the highest power rate (kW) of electricity usage during a defined period (usually 15 minutes), typically during the summer months when the power grid is under strain due to elevated power draw across regions. It is important to note that since demand charges depend on the intensity of energy consumption during a specific period, two customers consuming the same amount of electricity from the same utility company with the same tariffs may incur vastly different demand charges.

For an in-depth understanding of peak demand, visit our blog ‘Get Ready for Peak Demand‘. Watch this video for further analysis and learn how Team Solect can help you reduce or eliminate your demand charges.

Statistically speaking

A 2017 report from the National Renewable Laboratory highlighted that there were nearly 5 million commercial customers in the United States (and over 200,000 in the state of MA) with demand charges exceeding $15 per kilowatt (kW) who could subscribe to retail electricity tariffs. It represented over a quarter of the total 18 million commercial customers nationwide during the survey (which encompassed more than 10,000 utility tariffs and a diverse circle of commercial entities as participants).

Clearly, if your demand charges exceed $15 per kW, the impact on your electricity bills will be significant and alarming. While the impact of demand charges varies from customer to customer, it typically constitutes between 30% and 70% of the overall electric bill. Fortunately, there is an economic and proven solution at hand. Implementing solar and storage systems can be transformative in managing escalating electricity costs due to high demand charges, stabilizing your budget, and reducing total costs.

Understanding the variation

Demand charges may vary across the same state. For instance, in New York, a customer on Long Island might be paying over $50 for each unit of electricity consumed during the peak demand period, while the average maximum demand charge for utilities in the rest of the state is under $10/kW. These discrepancies arise from differences in rate design processes (which vary by utility) and the magnitude of grid congestion across regions. Operating and maintaining distribution infrastructure—such as transformers, conductors, substations, and beyond—is costlier in metro New York City than in rural New York.

Maximizing savings: your action point

Managing peak demand is crucial and should be addressed without delay. Visit our blog to discover the techniques and strategies we recommend to keep your energy consumption in check and prevent skyrocketing electricity bills, especially during peak demand periods that may occur as soon as this afternoon. For a more substantial and long-term solution, consider integrating solar power and energy storage to enhance your peak demand management.

Why solar + storage outperforms standalone solar solutions

It’s important to note that because demand charges are typically based on a customer’s highest demand in a given month, an unexpected twist in the weather can largely negate any demand reduction savings enabled by solar for an entire billing period. Hence, an integrated solar-plus-storage system is a more robust and sustainable solution that supports your facility with stored energy during hours of high demand to help you avoid paying boosted electricity rates, besides ensuring uninterrupted operation and unaffected revenue.

To explore further, reach out to the Solect Energy team today.
Write to us at, call us at 855-800-4211, or send your questions through our ‘contact us’ page.


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