EV Charging Station Demand Charge Costs 101

Upgrading the power grid to handle the increased demand due to the higher number of EVs on the road will take a long time, and, in the interim, utility companies must use pricing strategies to balance demand and capacity. 

Chargepoint operators and others who install EV chargers must be able to operate cost-effectively and profitably, sometimes putting them at odds with utility companies. To recover their own costs, utilities add a demand charge to their bills, requiring electricity users to pay for the rate at which they demand power in addition to their actual consumption because of how this demand charge is calculated – which is different for every country and utility company – EV charging stations can end up seeing demand charges as 90% of their electricity bills. 

What Are Demand Charges? 

In addition to charging business users for the total amount of power they consume (total kWh), utility companies add a demand charge based on the rate at which each customer demands power (kW). The demand charge represents the cost of providing power to a business at a given time, and its goal is to allow electricity suppliers to recover the costs associated with providing capacity that is not always used. 

Electric companies have to ensure that there is enough capacity to meet the highest demand at all times. To do this, they invest in transmission lines and other costly infrastructure, and this cost needs to be spread across consumers. Those with higher and more significant peaks in their consumption rates pay more than those who consume electricity at lower or more stable rates. 

How Are Demand Charges Calculated?

While the exact rate is determined by each utility company and/or local government, demand charges are usually based on the highest average electricity usage above a specified demand limit within a defined time interval (usually 15 minutes) during a billing period. The demand limit is the maximum level of electricity demand that a customer is allowed to reach before they start incurring demand charges. 

For example, when calculating the bill for an EV charging station, the utility company will measure the average demand of every 15-minute interval and record the highest demand level over the one-month billing period.  

In this example, the highest peak demand, also known as the highest spike, was 250 kW. 

• Demand limit (set by the utility):100 kW 
• Highest spike:  250 kW
• Demand charge (set by utility):  $20
• (250-100)*20=3000
• Demand charge for EV charging station: $3,000 

Demand charge calculations can be more complex, with additional factors such as seasonal adjustments or tiered rate structures affecting the final amount. 

Demand Charges For Ultra-Fast Charging

Ultra-fast charging stations are a perfect example of a business that uses electricity sporadically, with extremely high peaks at specific times, such as when people are on their way to or from work. During off-peak times, the stations demand very little electricity. 

It is exactly these high spikes that result in high demand charges, which are 

one of the biggest impediments to investment in privately owned charging stations. 

Demand charges are one of the key factors to consider when assessing the viability of a charging station’s location. 

Managing Demand Charges Through Peak Shaving

One of the ways to combat demand charges and reduce electricity bills is through peak shaving – the practice of ‘shaving’ off the highest level of electricity demand directly from the utility company during peak periods. There are three main ways EV charging stations can reduce their spikes and, in turn, their demand charges: 

• Time-of-Use (TOU) Tariffs: Chargepoint operators can charge lower rates during off-peak hours, encouraging drivers to charge their EVs at those times, spreading out electricity demand and reducing their highest usage spikes. 
• Load Management: This involves controlling the power demand across multiple charging stations simultaneously to distribute the load evenly. This will lengthen charging time but will lower demand spikes. 
• Energy Storage Systems (ESS) & Power Boosters: Energy storage systems can be used to store excess energy during low-demand periods and discharge it during high-demand periods. 

As an example of using an energy storage system, let’s return to the EV charging station discussed above, in which the demand charge is $3,000 due to a spike of 250kW with a demand limit of 100kW. 

If the charging station installs a power booster to store energy, the booster draws energy from the grid at a consistent rate during idle times and then stores that energy so that it can be used at times of higher demand without involving the power grid. Using our example, let’s say that the power booster stores 100kW for use during a peak period:

	Without Power Booster	With Power Booster
Highest Spike	250kW	250kW
Demand Limit	100kW	100kW
Power Booster Storage	0	100kW
Total Power Over Limit Drawn from Grid	(250-100) = 150kW	(250-100-100) = 50kW
Demand Charge	$20	$20
Total Demand Charge	(20*150) = $3,000	(20*50) = $1,000

Thanks to the energy stored in the power booster, the charging station only draws 50Kw over the limit from the power grid, significantly lowering the demand charges for the month. 

Collaborative Solutions Are The Way Forward

It is important for charge point operators to have a solid understanding of how demand charges are calculated by their specific utility provider to find the best way to keep those charges down. While there are efforts – such as installing power boosters – that individual charge point operators can take, there should also be cooperation among utilities, charging station operators ‌ , and fleet operators to find practical solutions. Some joint solutions include: 

• Demand Response Programs: Utility companies can offer incentives to charging station operators to curtail their electricity demand during peak periods, effectively reducing demand charges. 
• Grid Integration: Integrating charging infrastructure with smart grid technologies enables charging sessions that can be dynamically scheduled to optimize charging during periods of lower electricity demand, reducing overall demand charges.

By leveraging these and other collaborative approaches, stakeholders can collectively reduce overall demand charges and promote more efficient grid integration.

Check out this article, where we will further discuss using power boosters as peak shavers to reduce demand charges.