A Guide to Peak Demand Charges

Having a stable and consistent supply of electricity matters. The risks of not having one can be extremely great, all the way to endangering lives. But electricity use is not uniform throughout the day and night or throughout the year. Sometimes, more people use electricity than others. These periods are called ‘peak demand’, and managing them successfully is crucial to the well-being of the entire country. 

This guide will take you through peak demand —what it is, how it’s managed, and why it can significantly affect the size of your business's energy bills. We’ll even discuss what you can do to ensure your business doesn't get stung too much for using electricity at the wrong time of day!

What Is Peak Demand / Peak Load?

“Peak demand” refers to the highest level of electricity consumption recorded by any user or group of users over a specific time period. It’s a measure of how much electricity is drawn from the grid during peak usage.

Peak load refers to the maximum amount of electricity the grid must supply during periods of peak demand. Essentially, peak demand is about consumption, and peak load is about the grid’s capacity to meet that demand.

While these two phrases are closely related, they’re often used differently: peak demand is often used in billing and demand charges, while peak load is critical for grid design and reliability planning.

Standard units are used to measure this, typically kilowatts (kW) or kilovolt-amperes (kVA) for smaller systems and in megawatts (MW) or megavolt-amperes (MVA) for larger grids. They’re commonly averaged over 15-minute, 30-minute or hourly intervals. Electricity suppliers then record the highest average during these intervals within a billing cycle.

Why Peak Electricity Demand Matters

Peak electricity demand matters because it can drive costs up, strain infrastructure, and even increase emissions. Suppliers have to build and maintain sufficient capacity to meet peak demand, even if it occurs briefly, and this can lead to expensive network upgrades that end up underused.

For commercial users, peak demand charges are a significant part of the electricity bill. As mentioned above, such charges are based on the highest power draw (in kW or kVA) during short intervals (often, as above, 15 to 30 minutes) and they can lead to significantly higher energy costs. Businesses are incentivised to shift or flatten demand to avoid these usage spikes.

Residential users typically don’t face direct peak-demand charges, but their collective use contributes to grid-wide peaks. This, in turn, can trigger higher wholesale prices and increase the need for fossil-fuel backup generation, which raises harmful emissions.

When Is Peak Electricity Demand in the UK?

Peak electricity demand in the UK typically occurs on weekday winter evenings between 4:00 PM and 8:00 PM, when residential and commercial usage overlap, and heating, lighting, and cooking appliances are heavily used.

During winter, demand can surge due to shorter daylight hours and widespread heating. Summer peaks are generally lower, though air conditioning in commercial buildings can cause localised spikes in use. Cold snaps, especially in the early evening, can also trigger sharp increases in demand. When renewable generation is low, such as during windless, cloudy days, backup fossil fuel sources are activated, increasing emissions and placing extra strain on the National Grid.

Peak demand events are specific periods when the National Grid anticipates or experiences unusually high consumption. At such times, they may issue “Demand Flexibility Service calls”, asking consumers or businesses to reduce usage temporarily to maintain grid stability.

Residential users contribute most during evenings, while business usage peaks during working hours. Commercial users may face peak demand charges based on their highest short-interval usage, incentivising better load management. Residential users typically don’t see direct charges, but they are ultimately indirectly affected by broader pricing and grid reliability.

How Peak Demand Charges & Maximum Demand / Capacity Charges Work

Peak demand and capacity charges are designed to reflect the cost of supplying electricity during high-demand periods. This works in different ways for business and residential users. For business users, maximum demand refers to the highest power draw (in kW or kVA) over a short interval (e.g. 15 or 30 minutes) during the billing period. The capacity is the agreed maximum kVA a site can draw.

Exceeding this will often result in your business incurring excess demand charges. Capacity charges are based on the agreed kVA, billed monthly, whether used or not. If actual demand exceeds this, penalties apply. The charge Basis is often calculated using the highest recorded kW/kVA in any interval, or per kVA of agreed capacity.

It works differently for residential customers. Electricity is priced higher during peak hours and lower during off-peak times. These are known as “Time-of-Use tariffs.”  Residential users also face standing charges, which are a fixed daily fee covering grid access and infrastructure. They are based on actual consumption during defined time bands, not peak draw.

These structures are intended to incentivise users to reduce consumption during peak periods, helping electricity suppliers manage grid stress and infrastructure costs. Businesses must closely monitor peak usage, while households benefit from shifting usage to off-peak times.

How do you Calculate Peak Demand?

Peak demand is calculated by identifying the highest level of electrical power usage (in kW or kVA) recorded over a short, defined interval (typically 15 or 30 minutes) throughout a billing cycle. This figure reflects the maximum load placed on the grid and is used to determine demand charges.

Electricity suppliers monitor consumption using interval meters that log usage in real time. The peak demand value is the highest average power drawn during any one interval, not the total energy used. For businesses, this can be based on kW (real power) or kVA (apparent power), depending on the tariff. 

If a site exceeds its agreed import capacity, excess demand charges may apply. Residential users typically aren’t billed for peak demand directly, but time-of-use tariffs indirectly encourage off-peak usage. Managing peak demand by staggering equipment use or installing demand-limiting controls can significantly reduce costs for commercial customers.

Why is Electricity More Costly to Deliver at Peak Times?

Electricity is more costly to deliver at peak times because demand surges require utilities to activate additional, often less efficient power sources and reinforce grid infrastructure to prevent overloads. These higher operational and capacity costs are passed on to consumers through peak pricing or demand charges.

During peak periods, suppliers have to meet elevated demand by ramping up generation, which may include using expensive standby plants. Grid operators also face increased transmission stress, requiring more robust systems and maintenance. To manage this, time-of-use tariffs and demand charges incentivise users to shift consumption to off-peak hours. For businesses, exceeding agreed capacity during peak periods can trigger excess-demand penalties.

What Is a Peak Demand Charge on Your Electricity Bill?

A peak demand charge on your electricity bill is a fee based on the highest level of power your site draws from the grid over a short interval within the billing period. It reflects the cost of maintaining infrastructure capable of meeting your maximum demand, not just your total energy use. On bills, it will appear as a separate line item, often labelled “Maximum Demand Charge” or “Capacity Charge,” calculated in £/kW or £/kVA.

Things are different for businesses, so here are a couple of examples of how they might be charged to your bill: 

• Small business: If peak demand hits 50 kW and the rate is £8/kW, the charge would be £400.

• Medium-to-Large site: At 500 kVA with a £10/kVA rate, the charge would be £5,000.

Fixed charges are based on agreed capacity (even if unused), while variable charges reflect actual peak usage. Exceeding the agreed capacity may trigger excess demand penalties. 

Peak Demand Reduction Strategies (Peak Demand Management)

There are various strategies your business can use to reduce its electricity use during peak demand. 

Demand Side Management & Load Shifting

Businesses can reduce peak demand by rescheduling high-energy processes to off-peak hours. This includes shifting HVAC, refrigeration, or manufacturing loads to times when grid demand is lower. Automated systems and innovative scheduling tools can help to optimise this without disrupting operations.

Load Shedding, Energy Storage & On-Site Generation

Load shedding involves temporarily turning off non-essential equipment during peak periods. Pairing this with energy storage, such as batteries) allows businesses to draw on stored power rather than grid electricity. On-site generation, such as solar PV, can offset grid usage, especially when paired with batteries to cover evening peaks.

Smart Timers, Off-Peak Use & Behavioural Changes

Installing smart timers on equipment ensures operation during cheaper, off-peak periods. Encouraging staff to delay high-energy tasks, such as charging devices or running dishwashers, until off-peak times can also help. Behavioural training and awareness campaigns reinforce these habits across teams.

Tariff Switching (Time-of-Use & Differential Tariffs)

Switching to time-of-use tariffs will align costs with actual grid demand. Businesses benefit by using electricity during low-rate periods. Some suppliers offer differential tariffs with incentives for reducing demand during critical peak windows. Reviewing and renegotiating contracts can unlock savings.

UK-Specific Policies, Schemes & Regulations

In the UK, peak demand charges are shaped by regulatory frameworks around capacity limits, smart metering, and national grid balancing schemes. Businesses must manage their demand to avoid penalties and take advantage of flexibility incentives.

Businesses have to agree on a “Maximum Import Capacity” with their Distribution Network Operator (DNO), which is typically measured in kVA. This sets the upper limit of power a site can draw. Exceeding MIC can trigger excess demand charges, often billed at a higher rate.  

Half-hourly meters are required for larger sites, recording detailed usage data used to calculate peak demand charges based on the highest interval load.

In addition, the National Grid Electricity System Operator (now transitioning to the National Energy System Operator) forecasts national electricity demand and coordinates supply to maintain grid stability. Accurate forecasting helps prevent blackouts and informs pricing structures. Businesses with flexible loads can support grid balancing by responding to forecasted peaks.

Launched in 2022 and now running year-round, the Demand Flexibility Service rewards homes and businesses for reducing electricity use during peak periods. Participants receive bill credits or vouchers by shifting or reducing consumption during designated events. As of July 2025, almost 2 million UK households have taken part, saving gigawatt-hours of electricity, and that number is only likely to increase still further. 

A lot of scary headlines have been written about electricity consumption in recent years, and it’s easy to feel as though there’s little to nothing that either business or residential electricity users can do to slow these ever-increasing costs. By auditing your consumption, checking and double-checking your tariffs, and using new technology to monitor or manage your usage, you can keep bills in check while ensuring your business does its bit to make our energy use more efficient.