The Complete Guide to Demand Charges for California Businesses (and How to Control Them)

If you operate a commercial facility in California, you’ve probably noticed a painful trend: your utility bill keeps climbing even when your energy use stays the same. That’s because most of the cost increases aren’t coming from the electricity you consume; they’re coming from demand charges.

For many businesses, demand charges make up 30% to 70% of the total electricity bill. And they’re only getting higher.

This guide breaks down what demand charges actually are, why they hit California businesses so hard, and — most importantly how solar and battery storage can give you real control over them.

Let’s make this simple, clear, and practical.

What Demand Charges Are and Why They Matter

Demand charges are fees utilities charge based on the highest electrical load your facility hits at any moment during the billing cycle. Not your total usage. Not your average. Just the biggest 15-minute spike.

If your facility hits one large surge, even for a short window, that spike sets your demand charge for the month.

Common triggers for demand spikes include:

• HVAC cycling during hot afternoons

• Startup of multiple machines at once

• Pumps and motors powering on

• EV fleet charging

• Cold storage compressors

• Large lighting systems turning on

• Commercial kitchens ramping up

It doesn’t matter if that spike lasted 30 seconds the utility records it, and you pay for it.

Why Utilities Charge Demand Fees

Utilities have to size their infrastructure based on potential peak usage, not average usage. Demand charges are their way of recouping the cost of building and maintaining that infrastructure.

The problem?
Businesses pay the price for brief operational spikes that they often can’t avoid.

Why Demand Charges Hit California Businesses So Hard

California has some of the highest demand charges in the country. There are a few reasons:

1. Grid instability and aging infrastructure

Utilities are upgrading lines, substations, and grid equipment and passing the cost to commercial customers.

2. Electrification and increasing peak loads

EV charging, HVAC loads, and heat waves are putting pressure on the grid.

3. California’s Time-of-Use (TOU) policies

When you draw energy during peak hours, demand penalties are even higher.

4. Utility rate increases

Annual rate escalations push demand fees higher every year.

5. No control over load spikes

Many facilities simply can’t avoid equipment that draws heavy electrical loads.

For manufacturers, cold storage, office buildings, warehouses, car dealerships, hotels, water agencies, and municipal facilities, demand charges have become a major operational burden.

How Demand Charges Impact Commercial & Industrial Businesses

The financial impact is bigger than most businesses realize.

1. Higher Monthly Bills

Demand spikes can drive thousands, even tens of thousands of dollars in monthly costs.

2. Budget unpredictability

If one day’s load spike sets your entire month’s bill, forecasting becomes difficult for CFOs and operations managers.

3. Expensive electrification

EV charging, fleet conversions, and new equipment add additional load spikes.

4. Reduced competitiveness

Businesses in other states simply aren’t dealing with California’s demand penalty levels.

5. No way to avoid spikes through normal operations

Even disciplined facilities can’t fully eliminate load spikes.

This is why businesses are turning to battery energy storage systems to control, not just reduce demand charges.

How Solar and Battery Storage Solve the Demand Charge Problem

Solar alone reduces energy consumption, but it cannot stop demand spikes.

Battery storage (BESS) is the real difference-maker.

How Batteries Reduce Demand Charges

A battery system discharges instantly when your facility hits a load spike. That means:

• The utility never sees the spike

• Your peak demand stays low

• Your monthly bill drops significantly

This strategy is called peak shaving, and it’s the single most valuable use case for commercial battery systems in California.

When Solar + Batteries Work Together

Solar produces low-cost electricity during the day. Excess solar charges the battery.
Then:

• When your load spikes → the battery responds

• When TOU rates rise → the battery avoids expensive utility energy

• When the grid is stressed → your facility stays protected

Solar lowers costs.
Batteries control the spikes.
Together, they stabilize your entire energy profile.

Financial Benefits of Reducing Demand Charges

Businesses choose solar + storage because the financial upside is substantial.

✔ Lower monthly electricity bills

Many facilities see 20–50% reductions in total bill amounts.

✔ Smaller demand peaks = lower long-term costs

Once the battery caps your peak, your demand profile reshapes over time.

✔ Reduced exposure to TOU penalties

Batteries avoid the highest-cost energy windows.

✔ Better electrification planning

Facilities can add EV chargers or equipment without triggering massive demand spikes.

✔ Predictable budgeting

A stable demand profile means cleaner forecasting for CFOs and controllers.

California Incentives That Support Battery Storage

California has some of the strongest incentives in the country for commercial battery storage:

SGIP (Self Generation Incentive Program)

• Significant rebates for BESS

• Often covers six figures for large installations

• Designed specifically for demand reduction and resilience

Federal Investment Tax Credit (ITC)

• 30% credit for solar & battery systems

• Additional bonus adders depending on project criteria

Accelerated Depreciation (MACRS)

• Allows businesses to recover system cost faster

When incentives are stacked properly, many commercial BESS systems see fast payback periods.

Operational & Reliability Benefits Beyond Cost Savings

Demand charge reduction is just one part of the value. Batteries also provide:

✔ Backup power for critical loads

Even a few minutes of downtime can cost thousands.

✔ Protection from grid instability

California experiences outages more frequently due to heat waves and infrastructure stress.

✔ Smarter facility load management

Batteries help smooth irregular load profiles.

✔ Better support for EV charging

Managing EV load spikes without expensive utility upgrades.

For energy-sensitive industries, cold storage, manufacturing, hospitality, and water management, these benefits are game changers.

Technical Considerations When Deploying Battery Storage

BESS systems must be engineered carefully. Burge Energy evaluates:

• Your historical load profile

• Past 15-minute demand spikes

• Solar production modeling

• Best battery duration (2-hour, 4-hour, etc.)

• Site electrical capacity

• Interconnection requirements

• Backup load priorities

• Future EV charging needs

Commercial energy solutions are not one-size-fits-all; they must be designed around real facility operations.

Why Burge Energy Is the Right Partner

Burge Energy specializes in commercial solar, battery storage, and EV infrastructure across Southern California. We understand:

• Utility rate structures

• Demand modeling

• Incentive programs

• Precise engineering for peak shaving

• Real commercial operations and constraints

We don’t oversell or exaggerate.
We engineer systems that work reliably and predictably.

Businesses partner with us because we bring clarity, real experience, and a straightforward approach to solving one of their largest operational challenges.

Demand charges aren’t going away, they’re increasing. But the businesses that act now will be the ones with predictable energy costs, stronger margins, and more resilient operations.

Solar + battery storage gives you control over demand charges and protects your facility from the volatility of California’s energy market.

To explore Solar, Battery Storage, or EV Charging solutions for your facility, schedule a consultation with Burge Energy today.