Demand tariff

What is a demand tariff?

A demand tariff is a tariff structure that includes a demand charge. A demand charge reflects the maximum demand (in kilowatts (kW)) the customer puts on the network during the peak period defined by the network businesses. Please note that network businesses are changing other components of the tariff structure alongside the introduction of the demand charge.

Benefit of demand tariffs

The introduction of demand tariffs by your distribution network is intended to optimise network-wide peak demand usage and is part of the Australian Energy Markets Commission’s Power of Choice initiatives. This is intended to benefit customers over the long term with lower overall network charges. Reference AEMC

What will change when the demand tariff is introduced?

Alongside the introduction of the demand charge, distribution networks are making changes to other tariff components. You may see changes to your tariff relating to peak, shoulder, and off-peak usage times and rates. These changes will reflect the costs of providing electricity to consumers with different patterns of consumption.

Distribution networks have different approaches to the introduction of demand tariffs.

VICTORIA:

  • United Energy and Jemena will be charging customers for demand during 2017 and onwards.
  • CitiPower and Powercor have introduced a demand charge for 2017, but the rate for the year has been set at zero. This gives customers an opportunity to understand the charge before a non-zero rate applies in future years.
  • Ausnet Services will be charging customers for demand from 2018.

Victorian distribution networks are moving higher-consuming small business customers onto demand tariffs as part of the Tariff Structure Statement (TSS) process for 2017-2020. This process is part of reforms to the National Electricity Rules governing distribution network pricing and forms part of the Australian Energy Market Commission’s Power Of Choice initiatives.

The Victorian distribution network Tariff Structure Statement for the period of 2017 – 2020, which include mandatory transition to demand tariffs, have been approved by the Australian Energy Regulator. Mandatory tariff reassignment thresholds for each distribution network are provided in the table below.

SME demand tariffs:

DB
Ausnet
CitiPower
Powercor
Jemena
United Energy
Structure
Fixed charge + variable charge + demand charge (seasonal/time of day)
Measurement
Fixed charge ($/pa)
Minimum fixed charge $/1.5kWh/Month
Variable charge ($kWh)
Demand charge ($/kW/Month)
Seasonal demand change
Higher summer charge (Dec - Mar), lower non-summer charge (Apr - Nov) (except Jemena)
Demand charge window (SME) workdays3 - 9PM10AM - 6PM10AM - 6PM10AM - 8PM10AM - 6PM
Mandatory tariff assignment thresholdConsumption >40MWh paConsumption >60MWh pa & Max demand >120kWConsumption >60MWh pa & Max demand >120kWConsumption >40MWh pa & Max demand >60kWConsumption >40MWh pa


How demand tariffs are calculated?

How demand works for SME customers depends on the distribution network. All networks calculate the demand charge each month based on the customer’s demand (in kilowatts (kW)) during a workday demand charging window. However, the demand charging window differs by network.

For VIC: CitiPower, Powercor and United Energy have a 10AM to 6PM (clock time) demand charge window; Jemena has a 10AM to 8PM charging window; Ausnet has a 3PM to 9PM charging window.

Each month, your highest energy usage over 30-minute interval (in kilowatt-hours (kWh)) during the demand charge window is converted into a demand value (in kilowatts (kW)). This value is then multiplied by your network’s monthly demand charge rate ($/kW/month) to calculate your demand tariff for the month.

In the example below, company A and B used the same amount of energy (5,000 kWh/month) but in different patterns. While company A consumed similar amount of energy during the day, company B had very high usage in some hours and very low in others. In the other words, company A's consumption profile was fairly flat and company B's was peaky. As a result, the maximum demand of company A in the month was 4.5 kW compared to 20.3 kW of company B. Company B, therefore, incurred higher energy expense even though it consumed the same amount of energy as company A.

The demand charge is designed to reflect the fact that it requires more investment in infrastructure from distribution business to service customers with peaky load like company B than company A.

 

Demand tariff

 

Company AVolumeRateAmount $
Supply charge30 days1.07$/day$32.10
Energy charge5,000 kWh0.18$/kWh$900.00
Demand charge4.5kW4.50$/kW/month$20.44
Total monthly bill spend$952.54

 

Company BVolumeRateAmount $
Supply charge30 days1.07$/day$32.10
Energy charge5,000 kWh0.18$/kWh$900.00
Demand charge20.3kW4.50$/kW/month$91.45
Total monthly bill spend$1,023.55