Many commercial/industrial energy users find themselves in the position that their actual energy usage can be as little as 50% of their total electricity bill due to their demand charges. These demand charges are based on the utilities need to be capable of supplying sufficient power on demand at any time. Businesses and institutions have two major components to their electricity bill, one being the actual kWh’s they use and the other for the peak power they consume at any one time, which is measured in kilowatts (kW).
Demand charges exist because utilities are required to maintain a vast array of expensive equipment on constant standby in order to meet sudden surges of electrical demand from larger energy users. Utilities penalize clients for the cost of this equipment in the form of peak demand charges.