What are demand charges, and what do they do to fleet charging?
A demand charge bills you for your highest short-interval power draw in the month, measured in kilowatts, on top of the kilowatt-hours you actually consumed. On a depot that charges hard for a few hours and sits idle the rest of the time, the peak-kilowatt line can be larger than the energy line. And a ratchet clause, which many commercial tariffs contain, lets a single unmanaged evening put a floor under your billing demand for the next eleven months.
Updated 2026-08-20
The two lines on a commercial electricity bill
Residential customers almost never see the second line, which is why demand charges catch out companies that have only ever managed an electricity bill by turning things off. Commercial tariffs above a certain size have both, and the demand component pays for the capacity the utility has to keep standing by for you whether you use it or not.That is the whole logic. A site that draws 20 kW steadily all month and a site that draws 200 kW for two hours a day and nothing else can consume similar energy and impose very different costs on the network. The demand charge prices the difference.
The fifteen-minute interval is the whole game
It is not your instantaneous draw and it is not your monthly average. Two minutes of overlap between a compressor and a bank of chargers does not set your demand, because it is averaged away inside the interval. Sixteen minutes does.Check which interval your tariff uses, because thirty and sixty minute intervals both exist and a longer interval is more forgiving of short spikes. Check also whether the tariff bills a single demand figure or splits it into on-peak, off-peak and facilities components, because that distinction decides whether shifting your charging window helps you at all.
A worked example
The rates below are round illustrative numbers chosen to show the arithmetic, not figures from any utility. Substitute the two numbers from your own tariff sheet: the energy rate in dollars per kilowatt-hour and the demand rate in dollars per kilowatt.
Low utilisation makes it worse, and that is counter-intuitive
This is the trap in the first year of an electrification program. You install twenty ports for the fleet you are going to have, five vans arrive, and the effective cost per kilowatt-hour is terrible — not because charging is expensive but because the peak is fixed and the denominator is small.Which is an argument for capping the site low at the start and raising the cap as vehicles arrive, rather than commissioning at the design maximum and waiting for utilisation to catch up.
The ratchet clause, which almost nobody writes about
The percentage, the lookback and whether the ratchet applies year-round or only in certain seasons all vary by tariff. What does not vary is the consequence: once you set a high peak, you keep paying a share of it long after the evening that caused it.The evening in question is usually mundane. A software update reset the charger profiles. The site controller lost its network link and failed open. Someone commissioned four new ports and plugged everything in at once to test them. One shift, one meter interval, and the number is recorded.The illustration below applies an eighty percent ratchet with an eleven-month lookback to the same depot. Both the ratchet percentage and the rates are illustrative; find yours in the tariff.
How to find your own numbers
This is the single most useful tip in the article. The dollars-per-kilowatt figure is easy to find and it is only half the story. The ratchet, if there is one, lives inside the definition of billing demand — the paragraph that explains what quantity the dollars-per-kilowatt figure gets multiplied by. If billing demand is defined as anything other than the current month's maximum, you have a ratchet.For an investor-owned utility, the tariff is filed with the state commission and published on the utility's own site. Municipal systems and cooperatives publish a rate book adopted by their council or board. Ask your account representative to confirm you are reading the schedule you are actually billed on, because more than one commercial schedule usually exists and you may be eligible for a different one.
What to do about it
The cheapest lever is staggering start times, which costs nothing. The next is a hard site cap enforced at the service. Beyond that sit managed-charging software and, at the capital end, battery storage. Work down that list in order rather than starting at the bottom of it.The floor on how low you can set the cap is arithmetic: total energy the vehicles need, divided by the hours in the charging window. That is the minimum average power the site must deliver. Below it, vans leave short.
Is the demand charge based on my highest instantaneous draw?
No. It is based on the highest interval average, usually fifteen minutes. A brief spike shorter than the interval is averaged away. Check your tariff for the interval length, because thirty and sixty minute intervals exist and they are more forgiving.
Do all commercial customers pay demand charges?
No. Small commercial accounts are often on all-volumetric rates with no demand component. Adding a charging depot's load frequently moves an account onto a demand-metered schedule, which is a change worth discovering before it appears on a bill rather than after.
Does the demand charge still apply if I only charge overnight?
Usually yes, because the charge is on the peak rather than the hour. Some tariffs split demand into on-peak and off-peak components, or have a facilities demand charge that applies whenever the peak occurs. Read which structure yours uses; it decides whether shifting your window saves anything.
How do I tell whether my tariff has a ratchet?
Search the tariff sheet for billing demand, not for demand charge. Ratchets are written into the definition of billing demand — for example as a percentage of the highest demand established in the preceding eleven months. If billing demand is simply the current month's maximum, there is no ratchet.
Can demand charges really exceed the energy bill?
Yes, on a low-utilisation site. In the worked example above, an unmanaged depot pays $2,070 in demand against $1,188 in energy for the same kilowatt-hours. Put your own tariff's two rates into the same arithmetic; it takes five minutes and it usually changes the design.
The capital half of the same business case
You have the operating number. The installed range takes about two minutes and completes the comparison.