Understanding Demand – Tariff Structures, Networks, and What It Means to You
Most people understand that you have to pay for your electricity consumption in kWh, as most often seen on home electricity bills. However, for larger commercial customers there is usually an additional power portion of the bill covering site demand, which is billed in terms of kW or kVA.
What Is Demand?
Demand is a measure of power in kW, which is reflective of the rate at which you are using electricity. The networks have to provide a large enough capacity for the energy to be delivered at this rate. Poles and wires are sized to meet this need for both individual customers and then for regions as a whole.
In the above example, the car on the right has the higher demand and in an electricity context, has a greater stress on the network.
As site demand grows, so does this requirement. In order for there to be enough capacity to supply everyone, the infrastructure will need to be large enough, often in terms of maintenance and/or upgrades.
Why Is It Important?
There are two components to its importance; firstly, why it is important to networks, and consequently, why it is important to customers.
For the electricity networks, the greatest portion of cost in maintaining its operation is not due to how many total kWh flow over its lines, but rather by the largest kVA demand required to flow through its poles and wires at a single point time. Most often this point of greatest demand on the network occurs during a hot day in summer, when air conditioning units require more power due to the stress of harder operating conditions.
The electricity regulator and networks have been moving towards cost reflective pricing which puts a greater cost emphasis on the demand and network access portions of its charges.
This already can form a major portion of the bill, often 25% or more depending on the tariff, location, and size of the site. As networks continue with cost reflective pricing, so too will the cost of poor on-site power management.
The benefit is that it penalises those who put stress on the network, while rewarding those with effective management programs to reduce their site’s impact.
How Does Demand Relate to Capacity Charges?
Capacity is set and charged at certain intervals, such as on a monthly, quarterly, or annual basis. For a monthly set capacity, the largest peak value of demand during that period of time will appear as the capacity on your bill.
Each network provider handles capacity charges a bit differently, in terms of how often and when capacity is set, periods of time defined as peak, and whether to apply a kW or kVA for capacity.
For example, networks such as Ausgrid set capacities for a customer on an annual basis. The largest demand event that occurs during peak periods (2-8 PM weekdays) sets the capacity line item at that value until a larger demand event occurs, or begins to reduce after 12 months to the next lowest within the most recent 12 month window.
Smaller customers have capacity charges in terms of $/kW/day, while customers larger than 160 MWh/yr are charged via $/kVA/day. KVA, put simply, takes into account the power quality usage of the site and therefore its additional requirements from the network.
What Can I Do About It?
Your Network Tariff Details
Find out which tariff you are on and what the rules are for it.
We can help you understand your tariffs and how best to manage them by taking into account your business type and equipment assets.
If your network capacity is set annually, mistakes can mean a year’s worth of penalties. Therefore, it is critically important to create a strategy to schedule large equipment to run at staggered intervals, at part-load, or outside of peak times wherever possible. This might include moving the usage of pumps used for swimming pools or irrigation. It could also incorporate switching on a backup generator when peak demand is likely to occur.
Depending on your site, there may be also be a more appropriate and cost effective tariff that we can help you move to.
Solutions such as Power Factor Correction are designed to reduce the gap between kVA and kW, to reduce these charges when appropriate.
- Preventative savings of $11,000 by locking out the main pumps from operating during peak at the Australian Golf Club
- Identifying and moving non-critical mechanical loads to afterhours reduced peak energy and kVA charges for savings of $16,000 per annum at AMBOS Manufacturing
- Staging start-up times of A/C and heating smoothed out coinciding load spikes for demand savings of $9,000/yr at Radford College