By Tamika Brooks · Updated October 30, 2026 · 7 min read
Short answer
A demand charge bills a commercial customer for its highest short-term electricity use in a billing period, not just total kilowatt-hours. Chillers are often the biggest single contributor to that peak. Careful chiller staging, setpoint and start-up strategies, load shedding and thermal energy storage can lower peaks without reducing comfort. Tariff rules differ by utility, so confirm the exact demand definition and rate with your provider.
A demand charge is a part of many commercial electric bills that is based on the highest rate of electricity use, measured in kilowatts (kW), during a short interval in the billing period, not on the total energy used. A building that runs all its chillers at once for fifteen minutes can pay for that peak all month. Because chillers are among the largest electric loads in commercial buildings, how they are staged, scheduled and controlled has a direct effect on demand charges. Rate structures vary by utility, so always confirm the exact rules in your tariff.
What is the difference between energy and demand?
Energy is the total amount of electricity consumed, measured in kilowatt-hours (kWh). Demand is how fast you use it at the busiest moment, measured in kW. An analogy is a car trip: energy is total miles, demand is top speed.
| Item | Unit | What it reflects |
|---|---|---|
| Energy charge | kWh | Total consumption over the month |
| Demand charge | kW | Highest average load in a measurement window, such as 15 minutes |
| Time-of-use rates | kWh by period | Different price per kWh at different times of day |
| Ratchet or minimum demand | kW | A rule that keeps billed demand at some fraction of the past peak, if the tariff includes one |
| Power factor adjustment | kVA or kVAR | Penalties or credits related to power quality |
Utilities in Texas offer a range of commercial tariffs, and some customers buy from competitive retail providers on the ERCOT grid. Austin Energy is a municipal utility with its own rate schedules. Check your utility’s current tariff or contract, as definitions, windows and rates differ and change.
Why do chillers cause demand peaks?
A large chiller compressor motor can draw a lot of power when it runs at full load, and several chillers starting together can create a sharp peak. Related equipment adds to it: chilled water pumps, condenser water pumps, cooling tower fans and air handling fans. In summer, the hottest afternoon pushes chillers to full load just when the rest of the building is also at peak use.
Typical causes of avoidable peaks:
- Simultaneous start-up. Morning pull-down after a night setback, with all chillers starting at once.
- Poor staging. Starting another chiller earlier than needed, or running two chillers at part load when one at full load would do.
- Low-efficiency operation at hot conditions. See Texas heat and chiller capacity.
- Uncoordinated loads. Other large equipment starting at the same time as the chillers.
- Control errors. Overridden setpoints, stuck valves or sensors that force high load.
How can chiller staging reduce peaks?
Staging is the logic that decides how many chillers, pumps and tower cells run. Better staging can lower peaks without sacrificing comfort.
- Stagger start-ups. Bring chillers on in sequence with delays so inrush and pull-down do not coincide.
- Use soft starters or variable-speed drives. These reduce starting current and let machines modulate; see variable-speed (VFD) compressors.
- Match chillers to load. Where plants have chillers of different sizes, run the one that fits the current load instead of the largest by default.
- Optimize pumps and tower fans. Variable-speed pumping and fan control cut auxiliary load.
- Watch part-load efficiency. Some chillers are most efficient at moderate load; see chiller efficiency, kW per ton and IPLV.
- Limit demand with controls. Many building systems can cap chiller current or capacity during the peak window; this should be tested to confirm comfort effects.
What scheduling and setpoint strategies help?
- Pre-cooling. Cool the building mass earlier, when demand rates or outdoor temperatures are lower, then let the chillers back off during the peak window. Results depend on building thermal mass and occupancy.
- Chilled water temperature reset. Raising the supply temperature when loads are low improves efficiency, but may reduce dehumidification, so test it.
- Staggered occupancy loads. Avoid starting lighting, process loads and air handlers together.
- Demand-limiting setpoints. Temporarily relax space temperature by a small, agreed amount during peaks.
- Load shedding for non-critical loads. Turn off or delay loads that can wait.
- Seasonal review. A schedule that works in spring may be wrong for August.
Each strategy trades comfort risk against savings, so measure and verify. Trend data from the building automation system shows whether peaks actually fall.
Where does thermal energy storage fit?
Thermal energy storage makes chilled water or ice when electricity is cheap or demand is low, then uses the stored cooling to carry the building through peak hours. That shifts the chiller load away from the demand window. See thermal energy storage explained for the technology options. It adds tanks, controls and space, and the economics depend on the tariff structure, the shape of the load and any available incentives. For some campuses and data centers it is a strong option; for others, controls and staging deliver most of the benefit at lower cost.
How do ERCOT peaks relate to building demand charges?
Utility demand charges and grid-level peaks are different but connected. ERCOT’s system peaks on very hot summer afternoons driven by commercial cooling. Some customers have rates or programs that reward lower use during grid peak periods. These programs differ by provider and may change, so check with your retail provider or utility for what applies. For background, see ERCOT summer peaks and commercial cooling load.
How should a facility team get started?
- Read the tariff. Find the demand interval, the billing window and any ratchet.
- Pull interval data from the utility or building meter and identify peak days and times.
- Trend chiller kW, pump and fan power, and outdoor temperature against those peaks.
- Fix obvious waste first: simultaneous starts, bad setpoints, failed sensors.
- Test staging and reset changes on a few days and compare.
- Evaluate storage or additional equipment only after controls are tuned.
- Review quarterly, because tariffs, occupancy and equipment change.
Frequently asked questions
Can I reduce demand charges without buying new equipment?
Often yes. Staggered start-ups, better staging, setpoint resets and load shedding are control changes. Test them to confirm comfort and savings.
Does a VFD chiller always cut demand?
It reduces starting current and improves part-load efficiency, but peak demand at full load on a hot afternoon may still be high. Confirm with performance data.
Is demand the same as energy savings?
No. A strategy can lower kW while raising kWh, or the reverse. Look at both in your rate structure.
SpecServis engineers in Ukraine have worked with chillers and plant controls, and we are planning to enter Central Texas. We are looking for technicians and partners. See our open positions or partnership options.
