- Category:
Small Business Energy Savings -
Last updated:
January 26, 2026
How to Reduce Your Small Business’s Demand Charges
When you get your small business electric bill, you’ll see two big charges: one for demand and one for consumption.
- Consumption measures the electricity use over time in kilowatt-hours (kWh) for each billing cycle. Think of it as the miles you travel from point A to point B.
- Demand measures the rate of energy used in kilowatts (kW) at a given time, often in 15-minute intervals. Think of it as the speed of travel from point A to point B.
You can make small changes in how you use electricity to reduce demand charges and cut your overall bill.
What are demand charges?
Demand charges are fees you pay based on your highest rate of electricity usage in a billing period. To learn how to reduce demand charges, it helps to understand small business energy pricing.
The electrical utility must have enough capacity to meet your power needs, even during short bursts of high usage (called peak load periods). To supply enough power during these peaks, utilities invest in extra generation and infrastructure. To cover the cost of those investments, they charge peak load rates.
Utilities want to avoid sudden spikes in demand, so they encourage businesses to spread out energy usage over time. Peak load pricing, adding costly high-demand charges to your bill, is a powerful incentive.
The effect of peak pricing on your business’s energy costs
When your energy use rate is highly variable throughout the day, week and month, you’ll rack up peak load demand charges that are much higher than the cost of regular power consumption.
Peak load pricing is how you end up paying for capacity costs that ensure there’s enough power on demand when you need it.
These charges are highest when your usage occurs at the same time as other businesses and residential customers.
For example, in the summer, electricity customers tend to use power at a faster rate to run air conditioners on hot afternoons. So you pay the most during these time periods.
7 ways to lower your business’s peak demand charges
Understanding peak demand charges is the first step. Use these tips to reduce demand charges and put time-of-use rates to work in trimming your power bill.
1. Assess your business’s energy consumption patterns
Reducing peak demand starts with understanding when and how your business uses the most energy. You can review your usage patterns to identify when consumption spikes throughout the day, then take note of what equipment is running and what activities are happening during those times.
2. Run energy-draining equipment during off-peak hours
Another way to reduce peak demand charges is by operating equipment that consumes the most energy during off-peak hours when electricity rates are the lowest.
For example, you may be able to adjust work hours so that your employees’ shifts end by noon, or increase production at night once rates are lower again. During peak hours, try limiting air conditioning use and taking steps to keep cool air in and hot air out. You can also shift nonessential electricity use, like running the lunchroom dishwasher, to off-peak times.
3. See if your utility company offers load control programs
Load control programs take the guesswork out of managing when energy-draining equipment runs. When you enroll, your utility installs cycling devices on certain systems, such as air conditioners, so they can be briefly powered down during peak demand periods.
The brief shutdowns are typically unnoticeable in day-to-day operations, but they can have a meaningful impact on peak demand and overall energy costs.
4. Use a renewable energy system
If you have the opportunity to use renewable energy to supplement what your business draws from the grid, you can turn to these alternatives during peak use times. Your business can purchase renewable energy systems that turn sun, wind or hydropower into electricity. Because you rely less on your power utility, you can reduce peak demand charges. In some cases, you can enjoy a tax benefit, too.
5. Store any excess energy you generate
Renewable energy isn’t always dependable on demand. Your solar panels and windmills only produce power when the sun is shining or the wind is blowing. To make sure you have energy when you need it, you can store it.
The most common storage method is the battery. More exotic options, like flywheels, are not always practical for small businesses. Batteries store power for when it’s needed, which is ideal when you want to manage your demand on the power grid during peak times.
6. Stagger equipment startup times
Starting up multiple power-hungry machines or systems at once can create a surge in energy use, driving up the demand charge on your bill. Consider staggering start-up times whenever possible.
For example, kick on your HVAC, then wait a few minutes to start compressors and start manufacturing equipment a few minutes after that.
Having a consistent pattern of electricity usage throughout the day can minimize or eliminate costly demand charges.
You may benefit from installing automated controls and programmable timers that space out power demands, making it easier to avoid demand peaks.
7. Upgrade to energy-efficient equipment
Older systems and equipment with high power needs can drive up your demand charges as well as your total energy consumption. Replacing them with new, high-efficiency models is often worth the investment.
Modern appliances, HVAC systems, office equipment and lighting use less power at startup and throughout the day. Upgrading them can reduce usage peaks and lower your overall demand, helping you cut your power bill.
Keeping your business’s energy bill in check
Put your knowledge of how to reduce demand charges to use. Understanding small-business energy pricing is the first step in controlling your energy bill.
Managing when you operate power-hungry equipment to make time-of-use rates work in your favor can pay off.
Be sure to take advantage of energy company programs for more options and tips to lower your small business’s energy bill.
Peak demand charge FAQs
What’s the difference between demand and energy charges?
Small businesses typically see two charges on their electricity bills:
Consumption charges are for the total amount of electricity, measured in kilowatt-hours (kWh), used during the billing cycle.
Demand charges are additional amounts billed, based on the highest rate of electricity usage (in kilowatts, or kW) during an interval.
You pay the consumption charge for how much energy you use, and you pay a demand charge for how fast you use energy.
How are demand charges calculated?
Your demand charges are determined by your peak kW usage during set time periods, usually 15–30 minutes, through your billing cycle.
The peak demand amount is multiplied by the current rate per kW to determine the charge. This means that even a brief surge in power use within that 15–30 minute window can set your peak rate for the month.
Why is my small business’s demand charge so high?
It’s easy to drive up demand charges without realizing it. If you run multiple machines with high power demands at the same time, you can create a spike in your power usage. Using old and inefficient equipment can also push your electricity demand higher.
Staggering equipment startup times, upgrading to new, energy-efficient equipment and using energy management controls reduce demand charges by lowering your overall usage and balancing energy loads.
When do peak demand periods usually occur?
Peak demand periods match the timing of your highest energy usage. For many companies, peak demand happens on weekday afternoons when they’re operating at full capacity. During warm months, when you’re running air conditioning systems at the same time, demand spikes can be even higher.
Learn about peak and off-peak hours as your utility defines them, and consider tracking your energy usage to find which times will better spread out energy demand in your facility.
