Demand charges explained: how solar and batteries cut a business power bill

Many small and medium businesses are billed on a demand tariff without realising how much of the bill it makes up. If yours is one of them, the way solar and batteries are sized should change. A system sized only to cut kWh can leave a large part of your bill untouched.

What is a demand charge?

Your bill has up to three parts: a daily supply charge, an energy charge for the kilowatt-hours (kWh) you use, and, on a demand tariff, a charge for your peak demand. Demand is how fast you draw power at a moment in time, measured in kilowatts (kW) or kilovolt-amperes (kVA). The network sets a short measurement window and takes the highest reading in the period, which is usually a month. Windows and rates vary by network and tariff, so check your tariff documents. Our household guide to reading your electricity bill covers the basic parts of a bill, and Energy Made Easy explains tariffs.

Which demand tariffs apply, and when?

Networks can limit demand charges to certain hours, such as an evening peak window, or apply them at any time of day. Where the charge applies only in a peak window, it matters when your peak falls: a spike at 10 am costs nothing extra, while the same spike in the peak window sets the charge. Your network’s tariff schedule shows the windows, and your bill shows which tariff you are on. If you cannot find it, ask your retailer.

Why does solar alone often not cut demand charges?

Solar is excellent at reducing energy charges, but a demand charge is set by a single peak, and a single peak can happen at an unlucky time.

• Cloudy days. On a heavy cloudy day your solar output can be a fraction of normal while your equipment still starts up at the usual time, so the peak lands on the grid.
• Evenings. If the peak window is late afternoon or evening, the panels are producing little or nothing.
• Short spikes. Starting several large motors, ovens or chillers together creates a brief peak that solar output may not cover, even on a sunny day.
• One reading counts. A single bad half hour sets the month’s charge even if the other 1,000 hours were perfect.

When can a battery help with demand charges?

A battery can discharge during your peak to hold your draw from the grid below a target, a technique called peak shaving. It works best when:

• you are on a demand tariff and the demand charge is a large share of the bill
• your peak is short and sharp, so a modest battery can cover it, rather than a long plateau
• your peak falls in the evening or on cloudy days, when solar cannot help
• the battery can recharge from solar or cheap off-peak power before the next peak.

It works less well when the demand charge is small, the peak is long (a battery runs out), or your peaks are unpredictable.

Worked example (illustrative, not a quote)

Assume a business with a 100 kW monthly peak on a tariff that charges $20 per kW per month (a made-up rate to show the maths). A battery that holds the peak to 80 kW saves 20 kW × $20 = $400 a month, or $4,800 a year, if it works every month. If the peak is missed once because the battery was flat or the spike was longer than expected, that month’s saving is lost. Your numbers will differ, so use your tariff and interval data.

For how batteries work for businesses, read business batteries. NSW businesses should also see the NSW business battery discount. For the wider case, see whether commercial solar is worth it.

What should you check before you spend anything?

1. Find your tariff. Your bill should name it and show whether there is a demand charge, and in what unit.
2. Get 12 months of meter data. Energy Made Easy says its personalised comparison uses meter data for a National Metering Identifier (NMI) assigned to the property or site, and that your business needs to have operated at the same property for 12 months or more. Your retailer or network can also supply your interval data. Fees may apply in some cases.
3. Find your peaks. Look at the highest 10 readings in each month. What equipment runs then, and what time is it?
4. Try the free fixes first. Staggering start-up of large equipment, scheduling heavy loads outside the peak window, and power factor correction often cost little.
5. Ask for modelling on your data. A good solar or battery proposal uses your interval data and shows the effect on both energy and demand charges.

Try our commercial solar calculator for a first estimate of solar savings, and remember it will not model your demand charge. If your site is a factory or warehouse, see our page on solar for warehouses and factories.

This guide is general information, not financial or legal advice. Rules, rebates and prices change, so check the linked sources before you decide. Facts checked 31 October 2026.