Your Business Power Bill Has Four Parts, and the Demand Charge Is the One You Can Move

Most advice about business electricity costs amounts to using less of it. That is fine as far as it goes, and for one line on the bill it is beside the point entirely.

A commercial electricity bill is not one charge. It is four, they behave differently, and one of them is billed on a basis most business owners have never had explained to them — which is why it is usually the easiest line to reduce.

The Four Components

Wholesale energy. The actual electricity, bought in a market where the price moves continuously. It is the part everyone thinks the bill is.

Network charges. Paying for the poles, wires and substations that deliver it. Set by regulated network businesses, and typically the largest single component of a small business bill. Retailers pass it through.

Environmental scheme costs. The cost of complying with renewable energy targets and efficiency schemes, recovered through the bill.

Retail margin. The retailer’s own costs and profit — billing, service, hedging, acquisition.

When you switch retailers you are competing on the fourth component and part of the first. The network component is the same whoever bills you, which is the main reason switching produces less saving than expected.

Where the Demand Charge Sits

Inside the network component, many small business tariffs carry a demand charge, and it is not billed on how much electricity you used.

It is billed on your highest rate of use — typically the maximum measured over a short interval, often fifteen or thirty minutes, during a defined period. Your peak, not your total.

The logic is sound from the network’s side. The grid has to be built to meet the largest simultaneous draw, not the average one. A customer who uses a modest amount of energy but does it all at once imposes more infrastructure cost than one who uses the same energy spread out.

The consequence for a business is unintuitive. A single interval — one occasion when several large loads happened to run together — can set a charge that applies across the entire billing period, and in some tariffs for months afterwards. You are billed for your worst moment, repeatedly.

Why This Is the Line You Can Actually Move

Reducing consumption is hard. It means less lighting, less refrigeration, less production — you are trading output for cost.

Reducing peak demand is a scheduling problem. The same work, the same total energy, arranged so that the big loads do not coincide. Nothing is given up except the assumption that everything starts at once.

That is a rare thing on a cost line: a reduction that does not require doing less.

What Creates a Peak

Peaks are usually made of a small number of large loads landing together, and the common culprits are predictable.

• Motor start-up. Compressors, pumps and large motors draw far more current starting than running. Several starting together makes a spike out of proportion to their normal draw.
• Opening the whole site at once. Refrigeration, HVAC, ovens, compressors and lighting all switched on within a few minutes of each other.
• Recovery after a shutdown. The morning after a weekend or a break is often the worst interval of the period, because everything is coming back from cold simultaneously.
• Coincidence with weather. HVAC running hard on the hottest day, at the same time as everything else.

What Flattening Looks Like

Stagger start-ups so the largest loads do not begin together — often a matter of minutes, and frequently achievable with existing timers.

Pre-cool or pre-heat before the peak window rather than during it, so thermal mass does the work while demand is low.

Sequence rather than parallel large equipment where the process allows.

Check whether soft starters are appropriate for large motors, which reduces the start-up surge specifically.

And know your own peak before doing any of it. Interval data is available from most retailers on request, and it will usually show that the charge is being set by a handful of intervals you can identify precisely.

Reading Your Own Bill

Tariffs vary by network, state and retailer, so there is no useful single figure to quote here. What is consistent is the structure.

Find whether your tariff has a demand component at all — not all small business tariffs do, and some sites are on a tariff that does not suit their pattern of use. Identify the measurement interval and the period the charge applies over. Ask the retailer for interval data. Then compare your demand charge against your consumption charge: if the demand line is a substantial share of the bill, the scheduling work is worth doing and the consumption work is secondary.

If you are modelling what a change would save across a year, our free cash flow and expense tools will handle it, and the exercise is worth doing before spending money on equipment.

One Caveat Worth Naming

Wider system demand has been rising, and there is a live public argument about what large new industrial and data centre loads do to network costs over time. That argument is real, but it is about system-wide investment over years — not about the line on your bill this quarter.

Your demand charge is set by your own site’s peak. That is the part within your control, and it is where the available saving actually is.