Demand tariffs introduce a new element to electricity bills. This article will help you understand how Demand tariffs work, and how Bill Hero can help you get the best price outcomes when your distributor migrates you to a Demand tariff. ## Should I stay on a Demand tariff? There has been much debate on Demand tariffs in Australia, and the consensus is now clear that customers on demand tariffs generally pay more for their power than those who are not. At Bill Hero, even though [we're still the only comparison tool that can actually compare demand plans](https://billhero.com.au/blog/energy-made-easy-cant-calculate-demand-comparison/), our policy now is to advise our subscribers on demand plans to opt out of that demand tariff and instead take up a conventional time-of-use or single-rate plan. Demand tariffs are assigned by distribution networks, and until December 2025, they could assign a Demand tariff charge to a consumer meter without consent or even informing the bill payer for that meter. In general, energy retailers will match their retail plan pricing structures with the wholesale pricing structures they face, and the distributor's tariff assignment determines those wholesale structures for each meter. That's why many households see demand charges suddenly appearing on their bills - it's because the network has imposed a demand tariff, and the retailers will then match that tariff change by migrating the customer onto a retail plan that also includes demand charges. Customers with a demand tariff assigned will generally only be offered demand plans by the retailers. The good news is that you can now request to be migrated off a demand tariff - distributors will reassign your meter to time of use by default,m but you can also request to be reassigned to single-rate if you wish. Your distributor controls your meter's tariff assignment and ultimately decides whether to change it, but you need to submit a change request through your retailer. ## Background to Demand Tariffs The energy transmission and distribution networks are under-utilised nearly all the time, but they must be built and maintained to accommodate high peak load events — such as those heatwave days in summer when everyone turns on their air conditioners at once — otherwise, the grid will become unstable, requiring 'load shedding', or even blackouts during those high demand times. Building and maintaining the infrastructure to support these peak demand events is very expensive, and all the costs eventually end up in everyone's bills, so it makes sense to find ways to minimise those peak load events, and also to apportion costs more toward those whose behaviour as energy consumers is driving those peak loads, and reward those whose behaviour helps minimise those peaks. Shaving peak demand down even a little bit can translate into significant savings at the aggregate level, and demand tariffs are intended to help achieve that. ## How Demand Tariffs Work Demand tariffs are designed to deliver a 'price signal' to encourage individual consumers to minimise both their *total* usage during peak times, and also the *intensity* of that usage > *Total* peak time usage can be minimised by shifting consumption out of peak times and into the shoulder and off-peak times as much as possible. This usually means time-shifting your consumption by running dishwashers, washing machines, and so forth during the afternoon 'solar sponge' period, or late at night. > > Not all consumption can be time-shifted, but it's usually still possible to minimise the *intensity* of peak time consumption by daisy-chaining appliance usage to avoid running multiple appliances simultaneously. The price signal has two parts: a reward of cheaper rates per kWh, and a punishment of a 'demand charge' that scales according to your highest instantaneous peak load recorded in any billing period. A demand tariff requires a smart meter. The tariff includes electricity usage and supply charges, like any other tariff, and an additional fee called a ‘demand’ or ‘capacity’ charge. The demand charge is a charge per kW that may be applied based on your maximum usage during any 'peak' times throughout a billing period. The structure of the demand change differs across the electricity distribution zones. Demand charges may be applied only if your usage exceeds a demand threshold at any time in a billing period, or they may always be present, but scale according to your maximum peak demand in a billing period. Demand charges per kW can be applied to every kWh consumed across the entire billing period, or a daily demand charge penalty rate may be applied for every day in the billing period. So you only need to over-consume for a single moment once in a billing period to pay demand charges over the entire billing period. Demand tariffs are different to how most of us are used to paying for electricity. If you have good knowledge of your electricity consumption patterns, and also have the willingness and ability to monitor and modify your usage, then a demand tariff could save you money. If not, it could cost you a lot more. > ## 🤔 Explain it like I'm five... > > **Household A** has a single 1 Kilowatt heater running all day. 1 Kilowatt means the heater consumes 1,000 watts each hour, so it will consume a total of 24,000 watts over a twenty-four-hour period. > > **Household B** has 24 of the same 1 Kilowatt heaters, each consuming 1,000 Watts per hour. The owner of this household switches them all on simultaneously and runs them for 1 hour. Household B also used 24,000 watts in the same 24-hour period. > > Under a single-rate tariff structure, both households would be charged the same amount, as they use the same *amount* of electricity, measured in kWh. > > This does not acknowledge the additional *intensity* of demand that household B has placed on the network. > > With a demand tariff, if the consumption spike occurs during the 'demand window', Household B will pay an additional demand charge for the intensity of the load their 24 heaters placed on the grid. Household A will pay less, as a reward for spreading the load over time. > > The demand charge is applied in addition to the familiar per-kWh usage charges. It is calculated based on your highest level of consumption measured during the 'demand window', which varies by distribution network but typically is between 3:00 p.m. and 9:00 p.m. > > Let's say the rate for the demand component is $4 per kW per Month: > > The demand charge is based on your highest level of energy usage in kilowatt-hours (kWh), consumed during any 30-minute metering period in the demand window on any day in the month. > > This is then converted into a 'demand value', measured in kilowatts or kW. If you are in Household B and run all your 24 heaters simultaneously at 7 pm for 1 hour, which falls within the demand time window, you use 24kW, representing your highest usage spike for the billing period. This 24kW value is then multiplied by the monthly demand charge rate. > > That would be 24kW peak demand, multiplied by the demand charge of $4 per kW per month. You would have an additional $96 charge on the bill. > > In the next month, if you doubled the number of heaters in your home and ran them all simultaneously for an hour again, you'd generate a bigger spike of 48 kW, and the additional demand component in your bill would be 48 x $4 = $192. ## Demand tariff benefits? In theory, the main direct benefit of demand tariffs for individual consumers is that kWh usage rates under demand tariffs should be lower than those under a single-rate tariff and lower than those under a non-demand time-of-use tariff. If you're careful about managing the intensity of your peak demand and therefore minimising your Demand charges, you could pay less overall under this kind of tariff, provided that the baseline consumption rates are really lower than the rates for non-demand alternative plans. ## Demand tariff disadvantages Demand tariffs punish households that let their guard down and allow their electricity usage to spike, even for a single moment during the 'demand window'. Demand charges are based on the highest single peak consumption event on any day of the billing period, but the charge applies to every day in that period, so a single peak consumption event will result in a higher price for the entire billing period. There is a risk in being on a demand tariff, and they are suitable only for households with a good understanding of demand patterns and a solid ability to manage that demand. ## Will a demand tariff save me money? It's theoretically possible that a demand tariff may save you money, but accessing savings under this kind of tariff will generally require you to be more vigilant in monitoring your power usage to avoid spikes and adopt efficient energy usage practices. Typically, this means minimising your *total* energy usage during peak times as well as the *intensity* of that usage. You can achieve this by time-shifting your usage, for example, by running dishwashers and washing machines outside the demand window, and by daisy-chaining your demand window appliance usage so that you avoid running multiple appliances simultaneously. The more common reality is that energy consumers on demand tariffs typically pay more for their power than those who are not. In NSW, [IPART research](https://billhero.com.au/blog/nsw-regulator-finds-that-demand-plans-are-more-expensive/) has found that Demand households pay on average $200 - $300 more per year than on-demand households ## Demand tariff structures by state ### NSW - Ausgrid Since 1 July 2019, demand tariffs have been assigned by default for all new residential and small business connections and for existing customers on flat tariffs who have chosen to upgrade to a smart meter. Demand (introductory) tariffs for 12 months are applied for existing residential and small business customers on flat tariffs who require meter replacement due to due to meter failure. Demand (introductory) tariffs are intended to allow customers to understand their patterns of usage for 12 months, before they will be automatically assigned to the default demand tariff. Customers assigned to the demand (introductory) tariff have the option to be reassigned to another demand tariff, or to a TOU tariff. A new TOU-demand and existing TOU tariffs are available for customers who opt-out of a demand tariff. TOU customers replacing meter for any reason will remain on TOU tariffs, and can opt-in to demand tariffs. Flat tariffs are no longer available to new connections. #### Demand Structure and Charge Window Each demand tariff for Ausgrid consists of three elements: * A fixed daily charge (in cents per day), * An energy consumption charge (in cents per kWh) with a seasonal TOU structure, * A seasonal demand charge (in cents per kW per day). The demand element is based on the maximum energy consumption recorded in any 30-minute period within the defined seasonal demand window on a working weekday in each billing period (measured in kW). The resulting demand charge applies for each day in the billing period (before being reset for the next month). The demand window for measuring the maximum demand is aligned with a corresponding TOU peak energy window. In seasons where there is no peak energy on working weekdays, a summer window of 2-8 pm applies. More information is available from Ausgrid here and here: ## ### NSW - Endeavour Endeavour Energy is introducing both a transitional demand tariff and a ‘cost reflective’ demand tariff intended to provide flexibility for customers to select the pace of their transition. The transitional demand tariff will become the default tariff for all new customers and those existing customers with the required metering who upgrade their network connection to three-phase or fro bi-directional flow of electricity after installing solar. Customers assigned to the transitional demand tariff will have the option to opt-out to the flat energy based tariff or the seasonal time of use tariff. The cost reflective demand tariff will be available to all customers on an opt-in basis subject to metering requirements. Endeavour’s demand tariffs consist of three tariff parameters: a seasonal maximum monthly demand charge, a flat energy charge and a fixed charge. ### NSW - Essential Energy Essential Energy’s demand tariffs are available on an opt-in basis for customers who have an interval or smart meter. Each Essential Energy network tariff is made up of one or more of the following components: * A fixed charge component – an annual supply charge that applies to each connected premises to which electricity is delivered. The amount does not vary with the amount of energy a customer uses. This component is charged as a fixed amount per day. * An energy charge component – a charge that is applied to each unit of electricity consumed in cents per kilowatt hour (kWh). Depending on the particular tariff, the consumption charge may also vary with the time of day or the amount of energy consumed in a period. * A demand charge component – a charge that is applied to either a customer’s maximum demand level in dollars per kilovolt-ampere (kVA) or per kilowatt (kW) or their electricity capacity requirement in dollars per kVA – depending on the tariff. Additional information on Essential Energy demand tariffs is available here : ### Victoria Demand tariffs are available on an opt-in and opt-out basis for residential customers with consumption less than 60 mWh per annum, or peak demand less than 120 kW. Demand is based on the maximum demand (kW) in each month that is recorded between 3pm and 9pm on work days with no minimum chargeable demand level (except in the United Energy zone where a minimum monthly chargeable demand of 1.5kW applies). ### South Australia Residential customers can move to a demand tariff on an opt-in basis provided they have the appropriate metering technology. Demand charges for residential customers are based on the maximum demand in any half-hour trading interval since the last meter read: * Summer Peak Demand on all days between 1600 and 2100 local time during November to March only * Winter Shoulder Demand on all days between 1600 and 2100 local time * Off-peak Demand at all other times (the price is zero for actual off-peak demand) ### Queensland - Energex If a retailer does not specify its preferred network tariff for a new customer, Energex will assign the customer to the Residential Transitional Demand tariff. If a customer classification is not received from the retailer for move-in small customers, the retail customer moving-in to the existing premises will inherit the existing customer classification and existing network tariff. Move-in customers are not considered as a new customer to Energex, as these customers are not a new connection to the distribution network. Energex will initiate network tariff reassignment of customers in the following instances: * When a SAC customer changes from a basic accumulation meter to a smart (Type 4) meter,including end-of-life meter replacement, and customer initiated meter replacement. * To transition customers that already have a smart meter from a flat tariff to a demand or time-of-use based tariff, and * as a result of review and assessment of customer assignment to ensure customers are assigned to the correct tariff class and tariffHow does Bill Hero handle demand tariffs? Demand charges for residential customers are calculated as a $/kVA/month or $/kW/month, for demand recorded at a connection point. These charges are applied to the maximum half hourly kW power reading that occurred at a connection point during either: * a single peak recorded anytime in the month, or * the maximum demand recorded within a peak demand window (specific timeframe). * Peak demand on all days between 1600 and 2100 local time ## How does Bill Hero handle demand tariffs? > The data present in your bill is specific to the tariff type you are on. Bill Hero does not compare tariff types and so will not present demand tariff plans for subscribers who are not already on a demand tariff. Bill Hero will detect from your bill if you are already on a demand tariff, and will compare your bill with the alternative Demand plans available from all retailers in the market. You'll see the Demand price item broken out in the price breakdown for every plan compared for you. Unlike Energy Made Easy and Victoria Energy Compare, Bill Hero is smart enough to calculate this additional Demand price into your comparisons. ## Why do some plans show the Demand at $0? Demand tariffs are inherently complicated, and not every retailer has billing systems capable of calculating and charging for Demand. Being on a Demand Tariff means that your distributor has decided to assign your meter to a Demand tariff type, and is therefore charging a new Demand component wholesale fee to your retailer, in addition to the network connection and per kWh fees wholesale fees. Retailers must pay the wholesale demand fee to the distributor for any of their customers on a Demand Tariff; however, it's up to the retailer to decide how to manage this additional element in their cost of goods sold. Most retailers have designed Demand plans that explicitly include the Demand component, but that's not the only way to do it. Some retailers that do not yet support Demand plans and billing may choose not to offer any retail plan at all to consumers on Demand tariffs. An unsupported tariff type is one of the main reasons a retailer might refuse an application from a new customer. However, any retailer can still offer a non-demand plan to demand tariff customers if they choose to. In this situation, the retailer will have increased their consumption charges to compensate for the additional Demand charge and is effectively absorbing the risk that your wholesale Demand charges will not exceed the margin they've allocated to cover it.