An energy demand charge is a fee on a commercial electric bill based on the single highest rate of power a site pulls from the grid during the billing period. It’s measured in kilowatts (kW), usually over a 15- or 30-minute window, and billed separately from the energy you use in kilowatt-hours (kWh).
In 2026, demand charges range from under $3/kW a month at some Midwest utilities to more than $46/kW at PG&E in California. One short spike can set the charge for the whole month, and at some utilities for the next 11 months too.
The two ways to lower them are to flatten your peaks (efficiency and shifting when equipment runs) or to cover them with a battery. Onsite solar on its own rarely does the job reliably.
How do energy demand charges work?
Think of your electricity use like filling a bucket with water from a faucet.
At the end of the month, the utility measures how much water is in the bucket. That’s your energy use, billed in kWh.
The utility also tracks how hard the faucet ran. Say you crank it wide open for one 15-minute interval at 1 AM in the morning. That burst gets recorded as your peak usage for the month, and you’re billed for it too.
That peak is your demand. The utility multiplies it by a dollar-per-kW rate, and the result is your energy demand charge.
Utilities charge it because they have to build wires, transformers and power plants big enough for your highest draw, even if you only hit it once.
What makes energy demand charges bigger?
There are four tariff details that decide how much a peak costs you:
The measuring window. Most utilities use your highest 15-minute average. Some, like Georgia Power, use 30 minutes.
Time-of-day windows. Many tariffs add a second, higher demand charge for peaks during set hours. PG&E’s peak window is 4 to 9pm every day. A spike at 5pm gets billed twice, once as your monthly maximum and again as your peak-period maximum.
Seasons. Summer demand charges are usually much higher. PSE&G in New Jersey adds a summer demand charge to its year-round one from June through September.
Ratchets. A ratchet lets one peak set your billing demand for months afterward. On Georgia Power’s PLM tariff, summer billing demand can’t fall below 95% of your highest summer peak from the previous 11 months. So one hot afternoon in July can shape your bill until the next June.
What do demand charges cost in 2026?
Rates vary a lot by utility. These are four 2026 tariffs for mid-size commercial customers.
| Utility (rate schedule) | Demand charge | Notes |
|---|---|---|
| PG&E, California (B-19, secondary) | $37.37/kW maximum demand, plus $46.16/kW for the 4 to 9pm peak | Summer rates, June to September, effective March 1, 2026 |
| PSE&G, New Jersey (GLP) | $4.72/kW every month, plus $16.23/kW in summer | Rates effective June 1, 2026, including New Jersey sales tax |
| Georgia Power (PLM) | $11.40/kW above 30 kW | Most demand cost is built into “hours-use” energy pricing; 95% summer ratchet |
| Ameren Missouri (3(M) Large General Service) | $7.43/kW in summer, $2.76/kW in winter | Effective August 17, 2025 |
Nationally, NREL’s most recent survey of demand charges found that about 5 million of roughly 18 million US commercial customers could be on rates with demand charges above $15/kW. About 3 million could face rates above $20/kW. That survey is from 2017, and rates have risen since.
Where else do demand charges hide on a bill?
In deregulated markets like New Jersey, Pennsylvania, Maryland and Illinois, part of your supply cost works like a demand charge too.
In PJM, the grid operator for much of the Mid-Atlantic and Midwest, each customer gets a “capacity tag” based on how much power it used during the five highest-demand hours on the regional grid the previous summer. PSE&G calls it a generation obligation, and bills it in dollars per kW each month. Transmission charges work the same way.
So a site that runs hard on the hottest afternoon of the year pays for it all through the next year, even if it never spikes again.
A real 12-month bill, broken down
VECKTA analyzed 12 months of PSE&G bills (September 2025 to September 2026) for a New Jersey commercial property using about 372,000 kWh a year.
The site paid $72,900 for electricity. $10,782 of that, about 15%, was delivery demand charges.
Demand charges weren’t spread evenly. From October through May, the site paid about $5.91 per kW of peak demand, and demand charges ran $300 to $550 a month. From June through September, the summer charge kicked in, the rate jumped to about $19.90 per kW, and demand charges rose to between $1,690 and $2,020 a month.
The site’s peak was 101.3 kW in August. Its average load across the year was 42 kW. That gap is what demand charges punish.
Add the capacity and transmission charges, which also follow the site’s peak, and 43% of the bill was driven by kW. That’s $31,400 a year set by a handful of 15-minute intervals.
(Load factor is the usual way to measure this gap. It’s average load divided by peak load, and this site’s annual load factor was 0.42. The closer to 1, the less you’re paying for spikes.)
What does one spike cost? 2026 math
At the New Jersey site’s summer rate of about $19.90/kW, letting 20 kW of extra equipment come on at once adds about $400 to that month’s bill.
At PG&E’s B-19 rates, a site that hits 100 kW more than usual at 5 pm in July pays $37.37 × 100 for maximum demand plus $46.16 × 100 for peak demand. That’s $8,353 for one spike in one month.
On a tariff with a 95% ratchet, like Georgia Power’s, a 100 kW summer spike can keep 95 kW on your billing demand for the next 11 months.
How do you lower demand charges?
There are a few levers and they work best together.
Flatten your peaks. Stagger start-up times for big motors, chillers and compressors so they don’t all draw at once. Efficiency upgrades like LED lighting and variable frequency drives (VFDs) on pumps and fans lower the baseline your peaks sit on.
Shift flexible load out of peak windows. Pre-cool a building or cold room before the peak window opens. Run pumps, charging or batch processes earlier in the day. In PJM markets, cutting load during the few hours the grid peaks in summer lowers next year’s capacity tag.
Cap your peaks with a battery. A battery can respond in an instant and be programmed to keep grid draw below a set level, reducing your peak charges. For most sites, that’s the main reason to buy one.
Does solar reduce demand charges?
Sometimes, but you can’t count on it. Solar mainly offsets energy charges, because every kWh your panels make is one you don’t buy from the utility.
Demand charges are different. One cloudy 15-minute interval during your busiest hour can set the month’s peak, and solar output drops off before most evening peak windows start. To keep your peak reliably below a set level, you need a power source you can turn on whenever you need it.
Pairing solar with a battery solves that. The solar charges the battery during the day, and the battery covers the peak.
When is a battery worth it for demand charges?
VECKTA’s rule of thumb is that demand charge savings start to justify a battery at around $20/kW a month and up.
Below that, solar alone is often the better first project. VECKTA recently modeled a hotel owner in the Mid-Atlantic paying about 18¢/kWh. Rooftop solar penciled out at roughly a 4-year payback and a 21% IRR. A battery didn’t make the cut, because the hotel’s demand charges weren’t high enough to cover its cost.
The New Jersey site above sits right at the line. Its summer rate of about $19.90/kW makes a battery worth modeling for those 4 months, along with what it could shave off the site’s capacity tag.
Battery prices are also falling. BloombergNEF’s December 2025 survey put stationary storage battery packs at $70/kWh, down 45% in a year.
Do batteries still get a federal tax credit in 2026?
Yes. Commercial battery storage still qualifies for the federal investment tax credit (Section 48E) after the One Big Beautiful Bill Act (OBBBA), signed July 4, 2025. Storage projects that begin construction by the end of 2033 can claim the full credit.
Solar has a tighter deadline. A solar project that didn’t begin construction by July 4, 2026 has to be placed in service by December 31, 2027 to qualify.
Quick answers
What is a demand charge? A demand charge is a fee based on the highest rate of electricity a commercial site pulls from the grid during a billing period, measured in kW over a 15- or 30-minute interval. It’s billed separately from energy use, which is measured in kWh.
How much are demand charges in 2026? It depends on the utility. Published 2026 rates range from $2.76/kW in winter at Ameren Missouri to $37.37/kW plus $46.16/kW during the 4 to 9pm peak at PG&E in summer. Start by looking at your bill and finding what the per kW charge is.
What is a demand ratchet? A demand ratchet sets your billing demand based on a past peak. On Georgia Power’s PLM tariff, summer billing demand can’t fall below 95% of the highest summer peak in the previous 11 months.
When does a battery make sense for demand charges? VECKTA’s rule of thumb is that batteries start to pay off for demand charge savings at about $20/kW a month and up, or when a site also needs backup power.
Sources
- PG&E, Electric Schedule B-19 (Advice Letter 7846-E, effective March 1, 2026).
- PSE&G, rate summary, rates effective June 1, 2026.
- PSE&G, post-BGS auction compliance tariff filing (March 2026).
- Georgia Power, Rate Schedule PLM-19 (2026).
- Ameren Missouri, Rate 3(M) Large General Service (effective August 17, 2025).
- PJM, FAQs for 5CPs and peak shaving.
- NREL, Identifying Potential Markets for Behind-the-Meter Battery Energy Storage, A Survey of U.S. Demand Charges (August 2017).
- BloombergNEF, lithium-ion battery pack price survey (December 9, 2025).
- Kirkland & Ellis, One Big Beautiful Bill Act brings big changes to green energy tax credits (August 2025).
