Electricity demand tariffs explained

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What is a demand tariff?

A demand tariff is a pricing structure designed by energy distributors to lessen the strain on the electricity grid during peak usage times. It encourages energy customers to use less energy during times when demand is high.

A typical energy plan consists of two charges: supply charges and usage charges. However, if you’re on a demand tariff, you’ll also be charged a third fee called a ‘demand’ or ‘capacity’ charge.

• Supply charge: The price your electricity distributor charges for supplying your property with electricity.
• Usage charge: The rate you are charged for consuming electricity, charged per kWh of energy consumed.

The demand charge reflects a household’s maximum electricity usage, typically between 3pm and 9pm on weekdays.

• Monthly demand reset: Demand charges are recalculated monthly, based on the customer’s highest energy demand within the month. Demand charges are reset every month.
• Seasonal demand reset: Demand charges are recalculated based on the highest energy usage within a season, eg: winter or summer. Demand charges are reset at the beginning of every season.
• Annual remand reset: Demand charges are recalculated based on the highest energy usage within a year and reset at the end of the year.

How are demand charges calculated?

Your highest energy usage over a 30-minute interval is then used to calculate the demand value. This is then multiplied by your network’s daily demand charge rate to calculate the total cost of the demand tariff.

The peak usage resets each month in most cases, meaning you only need to hit your peak once for that demand rate to apply every day for the entire month.

Demand charges vary across different electricity distributors and retailers. Demand charges may also be different in ‘summer’ (November-March) and ‘winter’ (June-August).

How often is my demand charge reset?

The majority of residential customers will have their demand tariffs recalculated on a monthly basis, so your highest usage this monthly billing period won’t carry over to the next.

However, some regions may use seasonal demand resets (recalculated at the start of each season) or annual demand resets (recalculated at the end of each year).

How do I sign up for an electricity demand tariff?

Customers will only be put on a demand tariff if they explicitly opt in. To qualify for this tariff, customers will need to have a smart meter. Victoria is the only state to have rolled out smart meters to all homes and businesses, as it’s the only state to mandate smart meter usage.

However, networks like EvoEnergy in the ACT and Ausgrid in New South Wales have moved towards demand pricing to aid with energy grid strain. This means that any household or business that has installed a new smart meter may be encouraged to go on a demand tariff for at least 12 months.

It’s best to consider how you use energy and whether you stand to benefit from it before making a decision.

Measuring your demand charges

As an example, a household in summer (between 3pm and 9pm) usually runs a fridge, TV and a few lights at the same time.

The maximum amount of electricity it draws from the grid at any one moment is 3kW. The demand charge would therefore be 101.904 cents (3kW x 33.968c) for each day of the month. This is on top of standard electricity usage and supply charges.

On another summer evening, this household runs the TV, lights, fridge, air conditioner, dishwasher and cooktop all at the same time, drawing 7kW of electricity from the grid at once.

This now becomes the new peak demand, and a demand charge of 237.776 cents per day (7kW x 33.968c) would be applied every day, again for the entire month.

Pros and cons of an electricity demand tariff

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Will an electricity demand tariff save me money?

Ultimately, the amount you save will rely on your ability to change usage habits and your awareness of peak and off-peak times. Doing so could help you make significant savings.

There are plenty of electricity usage monitors and monitoring apps with live usage information to help you track your usage. Some apps can send you alerts when usage gets out of hand.

How can I reduce electricity demand charges?

• Take advantage of the different times of the day where costs aren’t so high to use some of your more energy-draining appliances, such as clothes dryers or pool pumps.
• Avoid using multiple energy draining appliances at the same time during your allocated demand charge time period: for example, run your dishwasher first, then your washing machine afterwards instead of running both at the same time.
• If you need to use several appliances in peak demand hours, try to stagger them in 30-minute blocks to avoid your energy use skyrocketing during any half-hour.

Is an electricity demand tariff right for me?

Whether an electricity demand tariff is right for you depends on your personal circumstances.

While a demand tariff can save you money, there is still the risk that comes with incidental extra energy usage.

There may be little benefit to going on a demand tariff, especially in warmer parts of the country where energy usage is critical for cooling the home.

If you are keen to monitor your usage and know that you can take advantage of the peak and off-peak times, a demand tariff may work for you.

However, households like this are still probably better off sticking to a time of use tariff, as it means you avoid the risks that come with demand charges.

Compare single rate electricity plans

Comparing electricity providers, plans and tariff options regularly is one of the best ways to ensure you’re still getting a good deal on electricity.

Canstar Blue’s free energy plan comparison tool allows you to compare a wide range of energy providers across a variety of criteria, from usage charges and annual costs to green energy options.