What’s a Demand Charge? (And Why It Can Be Confusing)

Let's start with the definition, and then dive into it. Your demand amount is the average kilowatts hours (kWh) used in a given period. For example, if your period is 1 hour, you use 2 kWh for the first 30 minutes and then jump up to 4kWh for the last 30 minutes, your demand will be 3kWh. However, if the same usage was calculated in 30 minute intervals, then your demand will be 2 for the first period and then 4 for the second.

You then take the largest demand period per month, multiply it by your utility's pricing structure, and that's your demand charge.

In other words, some utilities don’t just charge you for how much electricity you use.
They also charge you for how fast you use it.

The “Big Gulp” Problem

Imagine your electric meter is like a soda fountain.
You can sip slowly all day long, or you can fill your cup in 10 seconds flat.

With a demand charge, your utility looks for the biggest gulp you took in a billing period — typically during peak hours, which are the busiest parts of the day. These peak periods can even change by season or month, so the window that “counts” is always moving.

• If you sipped steadily, no big deal. You'll still get a demand charge if it's over 0 kwh from the grid, but likely it'll be low.
• If you blasted the AC, ran the oven, dryer, and pool pump all at once?
  Your demand amount will reflect that.

And single uptick sets a big part of your bill — even if it only happened once all month.

Real Numbers: Why a Single Spike Costs So Much

Let’s look at two households.

• House A uses 1,000 kWh over the month, but spreads it out evenly.
• House B uses 800 kWh over the month (less!), but one day they run everything at once.

For simplicity, let’s say the demand charge is $12 per kW based on your highest 30-minute spike.

House B used less electricity… but paid more because of their single spike.

Visualizing the Problem

House A:  ▃▃▃▃▃▃▃▃▃▃   (low, steady usage)
House B:  ▃▃▃▃▃▃████▃▃▃   (one huge spike)

That single “████” moment is what set House B’s demand charge —
even though the rest of the month looked fine.

Why This Matters

For homeowners with solar and batteries, this is both a challenge and an opportunity.

• Challenge: A single “oops” moment can make your bill jump.
• Opportunity: Typically these demand plans come with a lower per-kWh price of electricity.
  If you can spread out your usage —
  or use your battery to shave down those spikes —
  you can dramatically cut your costs.

But Be Careful with Your Battery

It’s tempting to just set your battery to discharge during peak hours — but there’s a catch. Peak hours often extend past sunset, which means once your battery is depleted, the grid takes over. And if that happens during peak, your grid usage can still set a high demand charge for the entire month.

This is why smart timing matters — saving your battery for the moments that would otherwise cause a spike, instead of running it down too early.

The Good News: You Can Take Control

How I Managed Manually

Once I realized how the demand charge really works, I managed the alternating of the battery and grid myself. I knew my system enough to have some general guidelines:

• Base house usage was 1.5 kWh, discharged battery roughly 1% every 5 minutes.
• Small AC was 3kWh, discharged battery roughly 2% every 5 minutes.
• Large AC was 5kWh, discharged battery roughly 4% every 5 minutes
• Both AC was 8kWh, discharging 5% every 5 minutes.

We live in Phoenix, so this was during the peak of summer with regular temperatures around 110 so the AC was a necessity. We also have 30 minute peak times from 2-8 pm in summer.

I would set a timer to go off every 30 minutes during peak, and switch to battery on the quarter (so grid 2-2:15, battery 2:15-2:45, etc) to minimize transitions.

Around 5 we would shut down AC for an hour or so to ensure our battery didn't deplete. Inside temps got up to 85 degrees or so, it was hot.

After 6, if we had battery, I would often just use that and work the AC.

I was constantly doing mental math to try and make sure we were on track. However sometimes I didn't wait for the battery to fully switch before the AC, and that would add 0.1 or so kWh to my calculation. It was inefficient, exhausting, and I couldn't see myself doing this forever.

Use an Automated Solution

I built a small algorithm for myself to use during peak hours, as I've been a software engineer for a decade. I just didn't realize I could do that initially! After some friends asked if they could use it, I realized I could open it up for others to use as well. You don't have to be an energy expert, all the time, or even be technical. I recommend Grid Getter, especially if you have a demand plan, as it's easy to set up and does all the math for you. But use whatever tool works best for you!

That way, your “big gulp” stays small —
and so does your demand charge.