Quick definition: Demand charge is a component of electricity bills charged by utilities based on the highest amount of power drawn during a specific billing period, typically measured in kilowatts (kW).
Table of contents
- Understanding demand charges
- Indian context
- Practical applications
- How Neufin can help?
- Related terms
- FAQs
- Additional resources
Understanding demand charges
Demand charges are calculated based on four key principles:
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- Peak demand measurement: The highest power consumption recorded during any 15-30 minute interval within the billing cycle.
- Rate structure: A fixed rate per kW of maximum demand, which varies by utility and consumer category.
- Time of use: Different rates may apply during peak and off-peak hours.
- Power factor penalties: Additional charges may apply for poor power factor performance.
Indian context
In India, demand charges are regulated by state electricity regulatory commissions. For example:
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- Maharashtra: ₹400-500/kVA for industrial consumers
- Karnataka: ₹200-250/kVA for commercial establishments
- Gujarat: Implements ToD (Time of Day) based demand charges
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As per the Electricity Act 2003, utilities must clearly separate demand and energy charges in billing.
Practical applications
Understanding demand charges helps in:
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- Load management and peak shaving strategies
- Equipment scheduling optimization
- Power factor improvement initiatives
- Energy cost reduction planning
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Industries can typically save 15-20% on electricity bills through effective demand management.
How Neufin can help?
Neufin helps you reduce your demand charges by help your company switch to renewable energy. We provide the fastest way for companies to buy renewable energy in India. Companies choose Neufin because we provide –
- Guaranteed cost savings – Lower your electricity bills without operational headaches.
- End-to-end execution – From feasibility to power delivery, we handle everything.
- Zero upfront investment options – Easy and flexible financing through Neufin Capital
Related terms
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- Power factor
- Maximum demand indicator
- Time of day metering
- Load factor
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Frequently Asked Questions (FAQs)
How is demand charge different from energy charge?
While energy charges are based on total electricity consumed (kWh), demand charges are calculated on the highest power drawn (kW) during any interval in the billing period.
Can demand charges be eliminated completely?
While demand charges cannot be eliminated entirely, they can be significantly reduced through proper load management and peak shaving techniques.
What is the typical billing period for demand charges in India?
Most Indian utilities calculate demand charges on a monthly basis, with some variations in specific states or for special consumer categories.
Additional resources
- Bureau of Energy Efficiency guidelines
- State electricity regulatory commission tariff orders
Last updated: January 2025
Disclaimer: Tariff rates mentioned are indicative and may vary by region and time. Please consult your local utility for current rates.
