Demand charges are the hidden line item on your electricity bill that can dwarf your actual energy usage. They’re based on your business’s highest half-hour spike in demand each month — not your average use. That means one busy afternoon in Melbourne could shape your bill for the next 30 days. The good news? With a bit of strategy, you can rein them in.

What exactly are demand charges?

Most business owners assume their electricity bill is simple: kilowatt hours (kWh) used, times the tariff. But demand charges are a different beast. They’re calculated on the peak demand — the maximum load your business draws from the grid in any half-hour window.

Think of it like the difference between filling a bathtub slowly versus blasting the taps on full. The total water (energy) may be the same, but the system needs bigger pipes (network capacity) to handle that sudden surge. Retailers pass those infrastructure costs back to you via demand charges.

For many medium-sized Melbourne businesses, these charges can account for 30–50% of the electricity bill.

Why do demand charges matter more in Melbourne?

Melbourne has a dense commercial sector and a highly variable climate. Summer heatwaves and winter cold snaps mean HVAC systems often run flat out. Add in manufacturing equipment, commercial kitchens, or even EV charging — and you’ve got a recipe for high demand charges.

Local case in point: A Fitzroy bakery saw a $1,200 monthly spike because its ovens, cool rooms, and air-conditioning all ramped up at the same time on a hot day. The usage wasn’t unusual — but the overlap was.

This “coincidence of load” is what punishes many businesses. One bad half-hour can set your rate for the whole month.

How can businesses manage demand charges?

The trick isn’t to use less electricity overall — it’s to spread the load. A few proven strategies:

• Stagger equipment start-up – Don’t fire up compressors, ovens, and air-con at the same time. Program delays where possible.

• Shift flexible loads – Run dishwashers, charging stations, or non-urgent machinery outside peak times.

• Install smart controls – Demand response software can automatically throttle usage when you approach a threshold.

• On-site generation or batteries – Solar with storage can shave peaks, especially on sunny Melbourne afternoons.

• Staff training – Often overlooked, but a quick briefing on “don’t switch everything on at once” pays for itself.

Anyone who’s ever walked into a factory at shift change knows how tempting it is for staff to “just get everything running” immediately. A little planning avoids a bill shock later.

What’s the financial impact of ignoring demand charges?

Here’s where loss aversion — a behavioural bias we all share — kicks in. People hate losing more than they like gaining. In energy terms, ignoring demand charges is like letting hundreds or thousands of dollars slip away each month for no extra benefit.

For example:

• A Melbourne warehouse paying $15/kW in demand tariffs might see an extra $900 tacked on if demand spikes just 60kW higher one afternoon.

• Multiply that across 12 months, and you’re looking at over $10,000 in avoidable costs.

That’s money that could have gone into wages, equipment upgrades, or simply easing cash flow.

Are demand charges here to stay?

Yes. In fact, regulators are pushing for demand-based tariffs because they encourage efficient grid use. The Australian Energy Regulator has been clear: businesses that cause costly peaks should pay proportionally more.

So the challenge isn’t avoiding demand charges altogether — it’s learning to game them smartly.

FAQ

Q: Can small businesses in Melbourne be hit with demand charges too?
Yes. While larger users feel it most, many small businesses on commercial tariffs also face them. Always check your bill breakdown.

Q: Do solar panels reduce demand charges?
Not directly. Unless paired with batteries, solar output might not align with your peak half-hour. But storage and smart inverters can help.

Q: Is it worth hiring an energy consultant?
Often, yes. For businesses with bills over $5,000 a month, even modest demand management strategies can deliver strong ROI.

The bigger picture

Managing demand charges is less about cutting back and more about timing. It’s a behavioural challenge as much as an engineering one — about nudging staff, shifting routines, and being smarter with the assets you already have.

And for Melbourne businesses juggling bills, competition, and tight margins, every saving counts. Just like comparing supply contracts matters, so does controlling when you use your power. Businesses already chasing the cheapest business energy rates Melbourne should see demand charge management as the next lever.