What is a demand charge (kW or kVA) on a commercial power bill?

A demand charge is the part of a business power bill based on your peak: the most electricity your site draws at once, measured over a half-hour, rather than the total kilowatt-hours you use. Your lines company sets it and your retailer usually passes it on. In a worked example Orion published for its 1 April 2026 prices, peak and maximum-demand charges made up about 85% of a large connection's monthly delivery bill.

What is a demand charge on a commercial power bill?

A demand charge is a network charge on how hard your site pulls power at its busiest, priced per kW or kVA, per day or month.

Lines companies build cables and transformers big enough for the busiest moments. As Orion's January 2026 pricing summary puts it, "much of our upstream network is sized to meet the brief periods of highest loading."

So two businesses that use the same kilowatt-hours can pay very different lines charges if one runs steadily and the other spikes.

How is peak demand measured?

Your meter records energy in half-hour blocks, and your demand for each half-hour is twice the energy recorded in it. Use 100 kVAh in a half-hour and your demand is 200 kVA. Vector and Wellington Electricity both define it this way.

Because each half-hour is averaged, a short surge only counts for part of its size. An extra 60 kVA that runs for ten minutes adds about 20 kVA to that half-hour. Two large machines running together for the whole half-hour count in full.

Which half-hours count depends on your lines company

Networks use three broad methods:

• Anytime maximum demand: your single highest half-hour, whenever it happens.
• Peak-window demand: your highest half-hours within set weekday hours.
• Network-peak demand: your load while the whole network is at its peak.

Advice about avoiding Transpower's "RCPD" peaks is out of date: since 1 April 2023, Transpower's transmission charges no longer use regional coincident peak demand.

What is the difference between kW and kVA?

kW is the real power your equipment turns into work. kVA is the total power the network has to carry to deliver it. The ratio between the two, kW divided by kVA, is your power factor.

Motors, pumps, compressors and refrigeration plant also draw reactive power (kVAr). Reactive power does no useful work, but it still loads the cables. If your demand charge is in kVA, a poor power factor raises your billed peak for the same work.

What power factor do networks expect?

Vector and Wellington Electricity both expect a power factor of 0.95 lagging or better. Both measure the shortfall as twice the largest half-hour gap between kVArh and one-third of kWh. At 0.95, reactive power is almost exactly a third of real power.

• Vector can add a power factor charge of $0.3530 per kVAr per day on top of its kVA demand charge, measured 8am–8pm on weekdays, including public holidays.
• Wellington Electricity applies its power factor charge only to time-of-use connections that don't already have a kVA demand charge.

What a poor power factor costs: an illustration

Take a site whose busiest weekday half-hours run at 200 kW, on Vector's 2026 low-voltage commercial prices (network charges only, excluding GST):

The example assumes the same peak and power factor all year, and that your retailer passes Vector's charges through unchanged.

Which businesses pay demand charges?

Mostly larger commercial and industrial connections with half-hourly (time-of-use) metering, above a size each lines company sets. On the four networks here, that runs from 44 kVA on Powerco's western network, where medium commercial prices are based partly on historical demand, to 300 kVA at Wellington Electricity and Orion. Small shops and offices on standard business plans usually don't pay one.

• Vector: non-residential connections over 69 kVA are "commercial", and its commercial time-of-use prices carry a demand charge. Its non-time-of-use commercial prices closed in 2022, and any connection or meter change now moves a site onto time-of-use pricing.
• Wellington Electricity: there is currently no demand charge at 300 kVA or less.
• Orion: small and medium business connections pay fixed charges plus time-of-use charges per kWh. Major-customer pricing applies above 300 kVA, and sites between 150 and 300 kVA can choose it.
• Powerco: its 2026/27 methodology adds a demand charge for 200–299 kVA eastern-region connections, bringing them closer to its western region. Powerco says this aligns its prices with the Electricity Authority's guidelines.

How is a demand charge different from a capacity charge?

A capacity charge is based on the size of your connection, meaning what you could draw, and you pay it every day. A demand charge is based on what you actually drew at your peak.

• Vector charges both. Low-voltage commercial connections pay $0.0741 per kVA per day in capacity charges on top of the demand charge.
• On Vector's high-voltage prices you nominate a capacity. Any demand above it attracts an excess demand charge of $0.8640 per kVA per day, about 13 times the high-voltage capacity price. You can change the nomination only once in each year ending 31 March.
• Orion's nominated maximum demand rises automatically when the average of your 12 highest half-hours over the previous 12 months exceeds it by 10 kVA or more. Lowering it takes an application, and reductions aren't available within three years of a new or upgraded connection.

How can a business lower its demand charges?

Start with scheduling, which costs nothing, then shift flexible load, then look at power factor correction or batteries.

Stagger start-up

Many sites set their peak when everything comes on together: heating and cooling, compressors, ovens, chargers. Start the big loads in different half-hours so no single half-hour catches them all.

Move flexible load outside the measured hours

This helps only if your network measures set hours. Vector's demand window runs 8am to 8pm on weekdays, including public holidays, so pre-heating, pre-cooling or charging outside those hours doesn't count towards its demand charge.

At Orion, the hours that count are the signalled winter control periods. Orion says each 1 kW cut during those periods saves about $156 a year. It sends text and email alerts and averages your load across the periods, so responding to only some of them still helps. The Electricity Authority's distribution pricing practice note says demand charges work best when the peaks "can be predicted and communicated to customers".

On anytime-maximum pricing, only a lower highest half-hour helps, so spread your load evenly.

Fix power factor

Capacitor banks or active filters raise your power factor. If you have solar on Vector's network, ask whether you qualify for its approved-solar prices. Solar can distort the power factor calculation, and those prices carry no power factor charge.

Consider batteries and managed load

From 1 April 2026, Vector-approved commercial sites that connect to Vector's DER management system (DERMS) can use a DER price category with no demand charge. They must follow Vector's instructions at all times, or they can be moved back to standard pricing.

What should you check on your bill?

Find every line priced per kVA or per kW, learn how your lines company measures demand, then match your peak half-hours to what was running.

1. Confirm your lines company and price category. The ICP number on your bill tells you which network you're on, and our regional hubs set out how the networks above charge demand locally: Auckland (Vector), Wellington (Wellington Electricity) and Canterbury (Orion).
2. Ask your retailer for your half-hourly data and list your ten highest half-hours.
3. Check your power factor at those times, if your meter records kVArh.
4. Compare your connection capacity with what the site needs today.

If you'd like a second pair of eyes, get in touch. See also what we do for business electricity.