What are Capacity Charges Per Month – Capacity Charges Explained

You may have noticed several charges included in your monthly electricity bill. The “Capacity Charge” is one among them that often confuses consumers. As a consumer, you pay this fee for consistent electricity with the required demand. If the charge was a mystery for you, this article will clarify the capacity charge and how it is calculated.

What is the Capacity Charge?

The capacity charge for electricity is a power reservation fee. It is also called the “availability charge” that consumers pay for a consistent electricity supply. The fee is paid to ensure that a consumer will always get their required power in the grid, whether they are using it or not. Let’s clarify the thing with an example.

Guess that you are a bakery business owner, and your factory has powerful ovens to make those foods. The factory and those ovens are not in operation all day long. But you pay the capacity charge to ensure that you get sufficient power to run these powerful ovens at any time of the day. 

For the monthly payment of the capacity charge, the grid reserves your required power and guarantees to get it at any moment of the day.

What is the Purpose of a Capacity Charge?

The capacity charge does not only offer you some additional facilities. Instead, it has specific purposes that we mention below.

A Guarantee of Power Availability:

Paying the capacity charge secures the power availability for your business. The grid reserves a specific amount of electricity for a consumer when the charge is paid. It guarantees that nothing will interrupt your power supply in peak times. This system is crucial for any business or organisation with sensitive machinery or tasks, such as a hospital.

Demand Management:

The charge also assists businesses in their power demand management. You pay the capacity charge based on how much power your business requires. The more requirements, the more charges. The process encourages businesses to manage their power demand precisely and discourage electricity waste, which is worthwhile overall.

Promote Efficient Usage:

As mentioned above, the charge encourages consumers to focus on proper electricity usage and reduce waste. These practices can optimise the entire grid and benefit all consumers. It reduces strain on the power plant and makes the electricity supply efficient.

Learn about Energy Procurement for Businesses in the UK

How are Capacity Charges Calculated?

Since the charge lets you reserve the required energy, it is paid to the Distribution Network Operator (DNO). The charge is calculated based on a business’s KVA (Kilo-volt-amperes) requirement. Let’s check out how the capacity charge is calculated.

Imagine that you have a business with a 75 KVA requirement. The price per KVA is 70p. Based on this information, you can now calculate the monthly capacity charge.

Here is the formula to calculate the charge: Monthly Charge=Per KVA Price×Total Power Capacity

So, Monthly Capacity Charge=70p×75KVA

Since 1 pound is equal to 100 pence, the formula will be modified like this:

Monthly Charge= (70 ÷100) £×75KVA

Monthly Charge=0.7£×75KVA

Monthly Charge=52.5£

Therefore, you have to pay an additional £52.5 with the monthly electricity bill to ensure you get sufficient electrical capacity to meet your business’s power needs.

What is the Difference between Capacity and Demand Charges?

Both charges often create confusion among consumers due to their similar names. However, they are two distinct charges everyone should understand. Check out the chart to notice their differences.

Points	Capacity Charge	Demand Charge
Overview	It is a fee paid to the grid to ensure the availability of the required power.	The fee is paid for the highest electricity consumption at once.
Basic	The fee is charged based on the KVA.	It is charged depending on KW.
Billing structure	Fixed fee or variable based on grid demand.	Per kW rate multiplied by peak usage.
Purpose	The charge covers infrastructure costs.	The fee encourages efficient use during peak hours.
Application level	It is applied to the overall capacity.	It is applied to the highest demand within a billing cycle.

Ways to Lower Capacity Charges

Avoiding energy waste, switching production time, and using energy-saving equipment can reduce electricity consumption and capacity charge. Here is a discussion about them.

Energy Audits

It may seem unnecessary, but a professional energy audit can help your business in many ways. The process will pinpoint energy-wasting areas and guide you to improve efficiency. It will help you reduce peak demand, which means lower capacity charges. Moreover, a professional energy audit will provide detailed information regarding your energy consumption pattern. It is helpful for business owners to understand the time and area when most energy is used.

Load Management

It is a tricky way to apply to reduce the capacity charge. You can move your production time to a different schedule, positively affecting the capacity charge. For example, you can shift your business’s high-energy demanding activities from peak to off-peak hours

Using Energy-efficient Equipment

Sometimes, the peak demand and energy consumption get out of control due to old and inefficient machinery. Replacing them with energy-efficient ones will help reduce energy consumption and demand. As a result, the capacity charge will be lower.

Energy Storage

Nowadays, many businesses use battery storage systems to store excess energy generated during peak hours and utilise them when their energy requirement is high. This practice reduces the dependency on the grid and the overall capacity fee.

Frequently Asked Questions

What is the “Capacity” of electricity?

In electricity, the word “capacity” indicates the maximum capability of a grid to produce energy. We can compare the term with an engine’s horsepower. Capacity is calculated in megawatts (MW) or kilowatts (kW).

Why do capacity charges differ by location?

It can vary due to many reasons. The demand for energy in a specific location, fuel availability, and infrastructure cost of grids are highly notable among them.

Are capacity charges exclusive to half-hourly meters?

Though the capacity charge is related to half-hourly meters, they are not exclusive to those meters only. The charge is also applicable to other types of electricity meters if the charge is agreed between a consumer and the DNO.

What happens if a business exceeds its contracted capacity?

A business must pay additional charges to ensure supply consistency if it exceeds its contracted capacity.