Guide to demand tariffs

A demand tariff is a type of energy tariff structure that was designed to help reduce strain during peak times when the demand on the electricity network is highest.

A demand tariff (or demand pricing plan) is a type of electricity plan where you are charged an additional fee for energy consumption during certain times when demand on the electricity grid is the highest. A regular electricity bill will typically have two charges (your supply charge and your usage charge), but if you have a demand tariff then you will also have a demand charge.

The demand pricing structure may vary depending on your electricity retailer and state or distribution zone. However, typically demand charges will be applied to your energy bill based on one of the following:

• The average of your peak demand over a set period of time
• Your highest demand during a ‘demand peak period’
• The current seasonal demand rate.

While the exact times your electricity demand tariff may apply can vary depending on your retailer, typically they work in a similar way. They can apply to both flat rate tariffs (also known as single rate tariffs) and time of use (TOU) tariffs. However, it’s important to be aware that the peak period on a time of use tariff is not necessarily the same as a peak demand period.

Your smart meter records your data in 30-minute periods, and your demand charge will be based on your highest energy usage in a given billing period. Your demand charge is not fixed and is recalculated with each billing period.

This means if you and your neighbour were on the same tariff, but during a demand period you ran your washing machine and then later your dishwasher, but your neighbour ran both at the same time, you would be charged less for using the same amount of electricity. This is because your demand charge would be lower as your electricity usage was spread out during the demand period.

In that scenario, you could save further by moving the usage of energy-heavy appliances (e.g. washing machines, dishwashers, dryers, air-conditioners and pool pumps) to off-peak time periods, such as overnight, when the electricity demand is lower.

No, to have a demand charge, you must be on a smart meter. The demand charge can be applied to a flat rate or flexible rate (time of use) tariff. It’s all about what type of meter you have and whether it is able to measure the ‘surge/amount of power’ drawn during the peak demand time.. If you’re a small business or residential customer and have recently got a smart meter, your distributor might have automatically placed you on a demand tariff. If you’re looking for a plan that doesn’t include demand charges, you can compare electricity plans to search for a tariff type that suits your needs.

If your electricity plan has a demand charge, it’s important to track your energy usage to avoid getting unpleasantly surprised by your electricity bill. Because your demand charge will be based on your highest usage during peak periods, you need to stay on top of your electricity usage at all times. For example, even if you only forget once and run your dishwasher and air-conditioner at the same time during a peak demand period, you may be paying more for the entire month.

If you’re looking at getting an electricity plan with a demand tariff, here are a few advantages:

• Lower usage rates. If you’re on a demand tariff, then your electricity usage rate may be lower than it would be on a typical flat rate tariff. If you’re disciplined at keeping your energy use low during peak periods, you could see reductions in your electricity bills.
• Less stress on the electricity grid. Demand tariffs encourage both residential and small business customers to spread their electricity usage outside the demand window, which reduces the risk of outages and help stabilise the grid.

While demand tariffs can help the stability of the electricity grid, they can come with a number of cons if you aren’t careful:

• You have to be strict with energy use. If you aren’t constantly monitoring your electricity usage, particularly during peak times, you may get caught out by an unexpectedly high demand charge.
• Added complexity to your bill. Unlike with traditional flat rates plans, your bill will be more complex, with added charges. If customers aren’t sure how variable rate tariffs work, they may be hit with higher usage charges and not understand how to best manage their electricity use.
• A smart meter is required. You’re only eligible to choose a plan with a demand tariff (or a time of use tariff for that matter) if your property has a smart meter.