Businesses have endured commercial electricity demand tariffs/charges for quite some time. Now residential electricity customers are increasingly faced with the same electricity demand charges burden. However, solar + home battery systems can provide relief.
What Is A Demand Charge/Tariff?
A demand tariff (AKA a capacity charge) is a component of electricity billing where the daily charge is set by the highest power demand in a specific time period. For example, between 3pm and 9pm.
A peak demand charge is a little like the standing charge (the cost of having electricity supply available) you pay with residential connections. Only, it is potentially significantly higher.
The easiest way to understand how a capacity charge works is that it’s a cost based not on how long you use an appliance for. Instead, it is on the load due to that appliance, or combination of appliances. It could be over a reasonably short duration of use.
If a household has a peak capacity demand at or above a threshold set by an electricity distributor (let’s say 1.5kW), they are hit with daily electricity demand charges to use that level. Then, for each additional kilowatt of demand, extra charges may apply.
Electricity demand charges apply even though normal usage may be a fraction of the threshold most of the time.
Another unsettling aspect of residential demand tariffs is if the calculation often comes from the maximum half-hourly interval kW demand occurring during the monitoring period over an entire month.
If you happen to be running one or multiple major appliances (e.g. air-conditioner + electric oven) simultaneously for just an hour during the monitoring period on one day during the month, you’ll pay the calculated daily capacity charge for each day of that month!
Demand tariffs are starting to appear in residential contracts now, particularly in Victoria and South Australia. Some expect it won’t be too long before capacity charges start showing up in NSW as well.
Capacity Charges And Smart Meters
This billing system requires ‘smart meters’ to measure energy use in half hour periods so the peak rate of usage is determinable in order to set the daily demand charge. Smart meters are already in use in South Australia and Victoria and are about to appear in NSW, coinciding with the end of the solar gross feed in tariff and the switch to net metering of electricity.
In many cases, peak demand tariffs will result in increased electricity bills for residential consumers. This is particularly so for those not up to speed on the costs and energy efficiency strategies.
Even if the charge per kWh reduces, you may end up paying more in fixed charges than you do for the actual energy.
Avoiding demand tariffs when they become applicable in various states can be difficult if you have a smart meter. These are charges applicable by the network distributor rather than the electricity retailer. So it’s not a matter of “shopping around”.
While you may not be able to avoid demand charges, you can minimize the financial impact.
How To Reduce Electricity Demand Charges
To minimize the impact of peak demand tariffs, there’s a few things you can do:
- Avoid simultaneous use of major appliances.
- Shift energy usage from time periods when demand tariffs are calculable.
- When choosing new electrical appliances, compare the load ratings.
- Install solar + battery storage or retrofit a battery system to an existing PV installation.
How Solar + Battery Systems Can Help
The use of a battery can shave the top off peak usage if appropriately sized and with sufficient discharge capacity, resulting in significant savings. In some cases enough to pay the battery off reasonably quickly.
Home energy storage also enables you to better utilise your own solar energy production.
With a battery, you tap into your stored electricity at night or during peak rate TOU (Time Of Use) metering periods. Batteries boost your energy independence by reducing the amount of energy you’ll need to draw from the grid.
With professionally installed, good quality solar panels along with a next-generation energy system such as Tesla Powerwall, Sonnen, or Enphase AC Solar battery, you could slash grid power consumption by up to 80%*.
To gain a rough estimate on how you could benefit from residential energy storage, try our free online battery calculator.
With some minor changes in electricity usage and solar + storage, you may be able beat the network distributors and save a significant amount of money on demand charges!
For expert advice on choosing a suitable solar + battery system or battery retrofit, contact Energy Matters’ friendly experts. Energy Matters has been installing energy storage solutions throughout Australia for much of our 10-year history.
*Based on standard system installation in Sydney. Your site will require an assessment and your savings (if any) will depend on your individual circumstances (which may vary over time). They are likely to be different to any estimates shown.
Time of use charges
Note that demand or capacity charges are different to time of use charges. Time of use charges are seasonal and also daily. There are peak, shoulder and off-peak rates. NSW distributor Ausgrid explains it all on this page. Your state’s distributors and retailers probably have equivalent pages.