Key Takeaways
- Demand is the 15-minute average maximum power draw (kW).
- If contracted power is exceeded, the excess is usually billed at double.
- Even a single momentary overshoot affects that month's bill.
- Real-time monitoring + alarms prevent the overshoot.
- Load shifting (peak shaving) and the right contracted power lower the penalty.
A demand penalty is a line item added to the bill when a facility's instantaneous power draw exceeds its contracted power. It is less known than the reactive penalty but reaches serious amounts in some facilities. This article explains how the demand penalty forms and how it can be prevented.
What Is Demand? Demand is the average maximum power (kW) a facility draws over a set interval (usually 15 minutes). The distribution company uses this value to measure how much instantaneous capacity you request from the grid and defines a contracted power for each facility.
How Does the Penalty Form? When your demand value exceeds the contracted power, the excess is usually billed at twice the unit price. The most insidious part: even a short overshoot at a single busy moment in a month (for example all large motors starting at once) penalizes the whole month.
Prevention 1: Make Peak Demand Visible The first step is to measure. Monitor the demand value in real time with an energy analyzer. Get an alert as the contracted power is approached, so you can intervene before the overshoot happens.
Prevention 2: Load Shifting (Peak Shaving) Prevent high-power equipment from running simultaneously. Stagger the startup of large motors, shift deferrable loads (charging, pumping) out of peak hours. This lowers peak demand.
Prevention 3: Setting the Contracted Power Correctly If the contracted power is too low, you get penalized constantly; if too high, you pay an unnecessary fixed charge. Determine the optimum contracted power by analyzing your past demand profile.
Demand Management with SolarTools SolarTools monitors the demand value in real time, sends an instant alert as the contracted power is approached, and analyzes your past demand profile to help you both prevent the demand penalty and optimize the contracted power.
Frequently Asked Questions
How does a demand (peak power) penalty form?
When a facility's 15-minute average maximum power draw (demand) exceeds the contracted power, the excess is usually billed at twice the unit price. Even a single busy moment penalizes that month.
How is a demand penalty prevented?
Monitoring demand in real time and getting an alert as contracted power is approached, preventing high-power equipment from running simultaneously (peak shaving), and setting the contracted power correctly all prevent the penalty.
How should contracted power be set?
Too low means constant penalties; too high means an unnecessary fixed charge. The optimum value should be determined by analyzing the past demand profile.
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