Understanding demand vs. usage charges
What separates the two charge types
Usage charges bill for total kWh consumed over the month, while billing demand charges bill for your single highest 15-minute or 30-minute power draw, measured in kW. A business with a 220 kW peak, an $18.50/kW demand rate, and 62,000 kWh at $0.11/kWh pays $4,070 in demand charges and $6,820 in usage charges, a $10,890 total bill where demand is 37.4% and usage is 62.6%. Take that same split into the commercial demand charge calculator to see your load factor alongside it. Retail rate structures like this one are actually set by your state utility commission rather than a federal body, as the FERC's own FAQ page clarifies, so your specific tariff document is the definitive source for how your bill splits these two charges.
Why your real rate is higher than the advertised rate
Advertised rates usually reflect the usage charge alone, not the effective rate once demand charges are folded in. In the example above, the stated usage rate is $0.11/kWh, but dividing the full $10,890 bill by 62,000 kWh gives a true effective rate of about $0.1756/kWh, well above the advertised number. That's the number worth comparing against solar's cost per kWh in the commercial solar payback calculator, not the advertised usage rate on its own, and the solar savings calculator by utility rate can help you plug in that true effective rate for a more accurate savings estimate.
Why utilities split the two charges at all
The two charges reflect different costs to the utility: usage charges cover the energy itself, while demand charges cover the capacity the utility has to keep available for your peak draw, even if you rarely reach it. Splitting them lets the utility recover both types of cost fairly across customers with very different usage patterns, which is also why a low-load-factor business often sees a disproportionately large demand charge relative to its actual energy use. The commercial demand charge calculator shows exactly how load factor connects to this dynamic. Run the same inputs through battery storage size calculator to cross-check this figure. Before you budget, check what you can claim back. The federal tax credit calculator in our Rebates & Incentives section estimates the federal credit and state rebates for a system like this one.
How this split changes your savings strategy
Yes, because usage charges and demand charges respond to completely different strategies. Solar and general efficiency reduce usage charges, while demand charges respond best to peak shaving through a battery or load scheduling, so knowing which charge is larger tells you which lever to pull first. If demand turns out to be the bigger share, the demand charge reduction estimator is the more useful next stop than a standard sizing calculator. The Department of Energy's end-use load profile data is a useful reference for sanity-checking typical commercial load patterns against your own bill, and the battery storage size calculator in our battery storage section covers the sizing math for that path from a residential and small-scale angle. A battery can cut demand charges as well as store power. The battery storage size calculator in our Battery & Storage section can help you size one for your peak load.