In manufacturing facilities, electricity costs are often dominated by the peak demand charge, which reflects the highest power draw (in kW) recorded during a billing cycle. Utilities impose this charge to compensate for the capacity they must reserve to meet the plant’s instantaneous needs.
The peak demand tariff is expressed as a monetary rate per kilowatt (e.g., $/kW). By multiplying the measured peak demand by this tariff, a plant can estimate the portion of its electricity bill attributable solely to demand, separate from energy consumption (kWh) charges.
Managing and reducing peak demand—through load shifting, energy storage, or process optimization—can lead to significant cost savings. Understanding the simple calculation behind the charge helps facilities identify the financial impact of each kilowatt of peak load.
D = peak demand (kW)
T = tariff rate ($/kW)
What is a peak demand tariff?
How do I calculate my peak demand charge?
Why is peak demand important for manufacturing facilities?
Can I reduce my peak demand charge?
What is the difference between a peak demand tariff and a kilowatt-hour (kWh) rate?
How often are peak demand charges billed?
Are there any exemptions from peak demand tariffs?
Results are for informational purposes only and do not constitute professional advice.