Demand Charges Explained: The Hidden Cost for Some Households

Most Australians pay for electricity based on how many kilowatt-hours they consume. But some households and businesses are on tariffs that also include demand charges — fees based not on total energy use but on peak power demand at specific times. Understanding demand charges is increasingly important for battery owners and anyone with high-load appliances.

What Is a Demand Charge?

A demand charge is a fee based on your peak power draw during a specified period — typically measured in kilowatts (kW), not kilowatt-hours (kWh). It's calculated from the highest average power demand recorded by your smart meter during a particular window (often 30-minute intervals during peak hours).

Example: if your peak 30-minute demand in July is 8 kW during the evening peak period, and your demand tariff charges $15/kW per month, you pay $120 in demand charges that month — regardless of how little you use during other times.

Who Has Demand Charges in Australia?

Demand charges are most commonly applied to:

• Business and commercial electricity customers — this is where demand tariffs are standard
• Residential customers in some states and with some distributors — demand charges are creeping into residential tariffs in certain DNSPs
• Households with very high consumption — in some states, high-consumption households may be moved to demand tariffs
• EV owners on some networks — charging an EV creates a high-kW spike that can trigger significant demand charges on networks that measure this

SA Power Networks' residential demand tariff (available as an opt-in or applied to high-consumption customers) is the most prominent residential demand tariff example in Australia. Some Queensland and Western Australian distributors also have residential demand tariff options.

Why Demand Charges Matter for EV and Heat Pump Owners

EV charging at a 7 kW Level 2 charger is a 7 kW demand spike. If this happens during the demand measurement window (typically evening peak hours on demand tariffs), it can significantly inflate your demand charge — even if the total energy consumed charging the EV is modest.

Similarly, a ducted air conditioning system starting up (compressor inrush) creates a momentary demand spike that a smart meter may capture as your peak demand.

For households on demand tariffs, the key strategy is demand management: avoiding multiple high-load appliances operating simultaneously during peak hours.

How Batteries Help with Demand Management

A battery can actively suppress peak demand by:

1. Detecting when your home load is approaching a high-demand state
2. Discharging battery power to supplement supply, reducing the grid import peak

Tesla's Powerwall has a demand management feature in markets where demand charges apply. Sungrow and some other inverter brands also offer demand peak shaving functionality through their energy management settings.

For a household on a demand tariff: a battery that successfully suppresses peak demand from 8 kW to 4 kW can reduce the demand charge by 50%. At $15/kW/month, that's a $60/month saving just from demand management — $720/year — in addition to self-consumption savings.

Should You Be on a Demand Tariff?

The answer depends on your usage profile:

• Good candidate for demand tariff: You have a battery that can do demand management. You have a fairly predictable, manageable peak demand. Your overall consumption is high (getting a high kWh rate saves more than demand charge costs).
• Poor candidate for demand tariff: You have an EV, pool, ducted AC, and no battery — multiple high-load appliances running simultaneously during peak hours will create large demand charges.

How to Check If You're on a Demand Tariff

Check your electricity bill: look for a charge labelled "demand" or "maximum demand" or "kVA demand." If you see a kW-based charge that varies monthly, you're on a demand tariff.

If unsure: call your retailer and ask specifically what tariff type you're on and whether demand charges apply to your meter.

The Bottom Line

Demand charges are not yet a mainstream residential issue in Australia — most households are on flat rate or TOU plans without demand components. But they're becoming more relevant as EVs and heat pumps increase peak loads, and as DNSPs explore demand-based pricing to manage grid stress.

If you're on a demand tariff: a battery is even more financially compelling than for a standard TOU customer. If you're not: be aware that adopting an EV or large heat pump on some networks could change your tariff eligibility.