What Are Demand Tariffs

A demand tariff (demand charges) is a pricing structure designed by energy distributors (retailers) to lessen the strain on the electricity grid during peak usage times. Demand tariffs incentivise energy customers to use less energy during times when demand is high. The reward is a lower electricity bill. Customers need to have a smart meter to qualify for this tariff.

Electricity demand tariffs explained

Demand tariffs have traditionally been used by large business customers but are now available to most Australian residents and small business customers. However, demand tariffs are very different to how most Australian energy customers pay for electricity. Discover the potential of electricity demand tariffs with GoSwitch.

A typical energy plan has two types of charges: supply charges and usage charges. A demand tariff is an additional charge called a demand or capacity charge. Demand charges reflect a household’s busiest 30-minute period electricity usage times, typically between 3pm and 9pm on weekdays.

Your peak energy usage over a 30-minute interval is used to calculate the demand value. The peak usage for residential customer demand tariffs usually resets each month. Demand charges vary across different electricity distributors and retailers. As the amount of electricity your household uses will vary during the year, the charges may be quite different in summer and winter.

What is the maximum demand charge?

Let’s explore some simple calculations. If your household draws 3kW of electricity at its busiest time, the demand charge will be 101.904 cents (3kW x 33.968c) for each day of the month. This is in addition to standard electricity usage supply charges.

If your home’s peak demand draws 7kW of electricity from the grid at once, the demand charge will be 237.776 cents per day (7kW x 33.968c) every day for the entire month. If you don’t have a smart meter installed, you will be charged a flat rate, time-of-use rate, or controlled load rate, according to your plan’s tariff structure. And don’t forget about solar panels for feed-in tariffs where you can sell electricity back to the grid.

* NOTE: The above calculations are based on approximate energy costs

Electricity demand tariff advantages

Demand tariffs are useful in specific situations for lowering energy bills. Demand tariff advantages include:

• Lower usage rates: Electricity usage rates with demand tariffs are considerably lower than usage rates on a single rate tariff. However, you have to ensure your electricity usage is consistent and at appropriate times to take the most advantage of this.
• Encourages energy efficiency: Demand tariffs are similar to time of use tariffs. Both tariff types encourage customers to spread their electricity usage over time. If your household energy usage includes using washers, dryers, air conditioners, showers, and ovens simultaneously, demand tariffs won’t be cost-effective.
• Alleviates stress on the grid: By making use of off-peak times for electricity usage, you will save the most money and reduce high demand on the energy grid.

Electricity demand tariff disadvantages

Demand tariffs can save electricity customers money and reduce strain on the electricity network. However, there can be disadvantages, depending on your home’s energy consumption.

• Can cause higher power bills: Demand tariffs are punishing on households that let their electricity usage spike. Brief spikes in your highest usage between 3pm and 9pm on any given day will result in you paying a higher price for the entire month.
• A smart meter is required: While some households in Victoria, NSW, Queensland, South Australia, and the ACT already have smart meters installed, the vast majority are still without one, making demand tariffs unavailable at this stage in many homes.
• An additional power charge to keep track of: Demand tariffs require customers to have two separate usage charges for a billing cycle, which can get confusing for some household electricity customers and small business energy customers.

Demand tariffs and electricity distribution networks

Demand tariffs differ between electricity distribution networks in Australia. Some distributors have moved to network tariffs with demand pricing to alleviate energy grid strain. However, new customers will usually only pay demand tariffs if they explicitly opt in. If your retailer suggests demand tariffs, it’s best to consider how you will benefit before making a decision.

Your GoSwitch energy consultant will put you in the picture for maximum savings on your electricity account, natural gas account, and bundle deals. We partner with Australia’s leading energy providers (retailers) to deliver the best possible deal for you. Our service is 100% free to use, and the savings are all yours to keep.

How can I reduce electricity demand charges?

If you’re on demand tariffs and want to reduce demand charges, you will need to optimise your energy usage. Here’s how to do it.

• Take advantage of off-peak times to run power hungry appliances such as clothes dryers, washing machines, and pool pumps.
• Avoid using multiple energy draining appliances during your demand charge time period. For example, use your dishwasher and washing machine at different times.
• If you do need to use several appliances in peak demand hours, stagger their usage in 30-minute intervals to avoid an energy use spike during any half-hour.

Are demand tariffs higher for night-time electricity use?

Demand tariff and time of use tariff peak times generally include evening hours until 9pm. This means that electricity can cost more at night than it does during the day. If you use energy after 9pm or during the day, you can avoid higher costs.

Should I choose electricity demand tariffs?

If you are an organised person who likes to monitor your electricity usage, a demand tariff may work for you, as you can take advantage of the peak and off-peak periods. If you live in a tropical or warmer part of the country, demand tariffs may not be suitable, as you will probably be using a power-hungry air conditioner during peak demand times.

Why use the GoSwitch energy price comparison service?

No matter what tariff you are on, there are a number of ways to reduce energy use for lower energy bills. You can start right now by using the GoSwitch energy price comparison search engine. Achieving your savings goal can be as simple as updating your account with your current energy retailer or switching to a new plan with a competing retailer.

There are lots of introductory offers, incentives, rebates, and other ways to save hundreds of dollars per year on your bill. We do the math for you, so you can switch with confidence with GoSwitch.