A capacity charge review means comparing the capacity your sites have agreed with their network operator against the power they actually draw, then fixing the gap. If you pay for far more capacity than you use, you are paying for headroom you never touch. If you draw more than you agreed, you can be hit with excess capacity charges. Either way, the evidence is already in your half-hourly data and your bills.
This guide explains what the charge is, where it sits on an invoice, how to test whether your figure is right, and how to ask for a change without creating a new problem.
TL;DR
- The capacity charge (also called the availability charge) is a network pass-through cost based on the capacity agreed for each site, not on how much electricity you use.
- Excess capacity charges apply when your actual draw goes above the agreed figure, and they are billed automatically for the whole billing month in which the breach happens.
- Review each site by comparing agreed capacity with its half-hourly peak over at least a year, then check the bill arithmetic and the voltage band your meter point is charged under.
- Cut capacity only with real load data. A reduction that is too deep can cost more in excess charges than it saves.
- For several sites, do this in one place: a spreadsheet works for three or four sites, but it gets slow beyond that.
Table of Contents
- What a capacity charge is, and what it is not
- How the charge is calculated
- Excess capacity charges
- Maximum demand and capacity: how they relate
- How to run a capacity charge review
- Requesting a change safely
- Perspective: why we think capacity is the quiet cost
- Reducing avoidable charges across several sites
- Doing this in EnerlyticsAI
- FAQ
- Sources
What a capacity charge is, and what it is not
A capacity charge is a network cost. One supplier's pricing guide describes the Availability Charge, sometimes called the Capacity Charge, as a pass-through charge covering investment and maintenance of the electricity network, charged according to the site's agreed capacity. Your supplier does not set it. It is passed on from the local distribution network operator (DNO).
That makes it different from the things people usually watch:
- Unit rate (p/kWh): pays for energy you consume. It moves with your usage.
- Standing charge (p/day): a daily fixed supply charge. If you want the wider picture of fixed against variable costs, see our piece on standing charge versus unit rate.
- Capacity charge: pays for the size of the connection you have reserved, measured in kVA. It does not fall when you use less energy in a given month.
It also differs from transmission costs. TNUoS charges recover the costs of installing and maintaining the transmission system and are charged to suppliers and generators. The capacity charge sits on the distribution side, as part of DUoS. Our guide to DUoS charges and how to cut them covers the whole family.
Who sees it
Capacity charges appear on half-hourly settled supplies. A supplier guide notes that half-hourly customers may see capacity charges on their invoices. If your site is on a non-half-hourly meter, you are unlikely to see a separate line. If you are not sure which category each meter falls in, our guide to half-hourly meter checks helps you sort that out first.
How the charge is calculated
The arithmetic is simple, which is why errors are easy to check. The charge is a daily rate per kVA, multiplied by agreed capacity, multiplied by the days in the billing period. The same supplier guide gives a worked example: 3.18p × 50 kVA × 30 days gives £47.70. The guide says the local DNO can advise on the rate, and that the charge is billed separately under "Cost of Electricity Used".
That example is a small site. The same sum on a larger connection scales in a straight line, so the lever is mostly the kVA figure. Halve the agreed capacity and, at the same rate, you halve the charge.
A worked check you can run today
Take one invoice and work through four steps:
- Find the capacity line and note the kVA, the rate in pence per kVA per day and the number of days.
- Multiply the three together and compare with the billed amount.
- Compare the kVA with the figure on your connection agreement or your supplier's record for that meter point.
- Confirm the days match the billing period, including part-months at the start or end of a contract.
A mismatch in any of these is a billing query. For the wider routine, see how to check business bills for errors.
Excess capacity charges
Excess capacity is what happens when you draw more than you agreed. Under network charging statements, these charges are based on the difference between the agreed capacity and the capacity actually used, and they are applied for the full duration of the billing month in which the breach occurs.
Two details matter:
- One spike can cost a month. A single half-hour above the line is enough for the whole month to carry the excess charge. A brief commissioning test, a plant restart after a shutdown or a cold-morning start-up can all do it.
- The rate is meant to hurt. Ofgem directed through change proposal DCP161 that the discount on excess capacity charges be removed, considering the change more cost-reflective, with implementation on 1 April 2016. Do not assume an old, softer rate applies.
Nobody will warn you
Do not wait for your network operator to flag a problem. Industry documents note that DNOs may not actively monitor individual customers' usage unless they have a specific reason, and excess capacity charges are billed automatically. The first sign is often the invoice. That is why you should monitor your own maximum demand.
The industry has long debated how harsh these charges should be. In a 2006 response to Ofgem, SSE argued that excess capacity should be dealt with mainly through bilateral contract enforcement rather than penal tariff charges, while stressing that DNOs need reliable capacity figures to plan the network. The practical lesson for you is the same: the network plans around the number you agreed, so that number should be honest.
Maximum demand and capacity: how they relate
People searching for "maximum demand charges" are usually looking at the same bill from the other side. Two figures matter:
- Maximum demand is the highest draw your site actually reached, which a half-hourly meter records. It is a measurement.
- Agreed capacity (the maximum import capacity, or MIC, for a site that takes power) is the limit you have contracted. It is a contract term.
The capacity charge follows the contract figure. The excess charge follows the gap when the measurement beats the contract. A review is therefore a comparison of one against the other, site by site and month by month. Our guides to peak demand analysis and to baseload against peak load show how to read the shape of demand behind the peak.
A note on units: demand is typically read in kW or kVA depending on the meter and the charge. Your bill's capacity line is in kVA, so make sure you compare like with like. If your meter data is in kW, check the power factor before assuming the two figures are equal.
How to run a capacity charge review
Step 1: Gather three things per site
- The agreed capacity for each meter point (MPAN).
- Twelve months of half-hourly data, or as much as you can obtain. If you do not have it yet, our guide to smart meter data access sets out the routes.
- The last year of invoices showing the capacity and any excess lines.
Step 2: Find the peak and measure the headroom
For each site, pull the highest half-hour in each month, then the highest of the year. Express the annual peak as a percentage of agreed capacity.
| Peak as share of agreed capacity | What it usually suggests | Next move |
|---|---|---|
| Over 100% in any month | You are exposed to excess charges | Find the cause, then decide whether to raise capacity or flatten the peak |
| 90% to 100% | Little room for growth or a one-off event | Leave alone, and watch closely |
| 60% to 90% | Reasonable margin | Check seasonality and planned load before changing anything |
| Well under 60% for a full year | Possible over-reservation | Investigate a reduction, with load testing |
The bands are our rule of thumb for triage, not an industry standard. The point is to sort sites into those worth the effort and those that are not.
Step 3: Check for load you have not yet added
A low historic peak does not mean a low future one. Before you reduce anything, list what is coming: new production lines, heat pumps, compressors, and EV charging. Charging in particular can stack on top of your existing peak, as our note on EV charging load and fuse checks explains.
Step 4: Verify the charging band
The capacity rate you pay depends on how your meter point is classed. DNOs are responsible for assigning the correct charges to each MPAN, and businesses can request corrections to their charging allocation if the voltage of connection is incorrect. If a site is billed under a band that does not match its actual connection, raise it with your supplier, who will go to the DNO.
Requesting a change safely
To discuss reducing an allocation, you contact the local DNO. The supplier guide we have cited advises a comprehensive load test to obtain actual data when you are considering a lower figure. It also warns that if you reduce your allocation and then draw more than the new limit, excess capacity charges may apply.
Before you submit a request, run through these checks:
- Test, then trim. Use a full year of data so that winter and summer extremes are both included.
- Add a margin. Set the new figure above the observed peak, not at it. How much margin depends on how variable your process is.
- Ask about costs and timing. Ask your supplier or DNO whether there is a fee, how long the change takes, and whether capacity can be increased later without delay. We have not found these terms to be uniform, so get them in writing for each site.
- Check the contract. Confirm whether your supply contract passes through network changes and from which date.
- Keep a record. Save the data you used. If a query turns into a dispute, the half-hourly evidence is your case.
If you have already paid for capacity you did not need, or billed amounts that do not match your agreement, look at how far back you can reclaim. Our guide on recovering refunds on business energy tariffs covers the time limits we know about.
Perspective: why we think capacity is the quiet cost
Most finance teams watch the unit rate because it is on the front of every quote and moves with the market. The capacity line is small, repeats every month and is rarely questioned. That is exactly why errors survive. A figure agreed years ago for a building that has since changed use can sit unchallenged on an invoice.
Our view is that capacity should be treated as a managed number, reviewed at least once a year and whenever a site's load changes. We built our platform around bill validation and half-hourly analytics for this reason: the review is not hard, but doing it by hand across many sites is slow, so it tends not to happen. Putting agreed capacity beside the real half-hourly peak, site by site, makes the over-reserved and the exposed sites visible in minutes rather than weeks.
We would also say, plainly, that cutting capacity is not always the right call. A site close to its limit is better served by flattening the peak, by staggering start-ups or moving non-critical tasks, than by either paying penalties or buying more headroom than it needs.
— Chris
Reducing avoidable charges across several sites
The supplier guide suggests several levers: reviewing peak supply usage, spreading high-load tasks across the day, moving non-critical tasks to off-peak times, or upgrading to more energy-efficient equipment. Across a portfolio, a few habits make these work:
- Rank the sites by gap. Start with the sites where agreed capacity is furthest from the real peak, in either direction.
- Find the single half-hour that sets the peak. It is often one event. Stagger the start-up of large motors, compressors or ovens and the peak can drop without any capital spend.
- Alert on approach. A warning at, say, 90% of agreed capacity gives your team time to act before the month is lost to an excess charge.
- Review on a calendar. Tie the review to contract renewals and to any change in site layout or equipment.
- Treat new load as a capacity decision. Before installing chargers or heat pumps, check the effect on the peak.
Doing this in EnerlyticsAI
If you manage several sites, the work is the same each time: bills against agreed figures, peaks against capacity, and anomalies flagged. In EnerlyticsAI you can upload bills for automated checking, view half-hourly data per site and track each site on its own dashboard.
Our free forever Starter plan lets you begin without upfront charges, so you can test your own sites' peaks against their agreed capacity before you spend anything. Paid plans are Eco at £49 per month, Growth at £79 per month, Professional at £149 per month and Scale at £299 per month, for when you need more.
You can create a free account and start with one site.
FAQ
What is a capacity charge on a business electricity bill?
It is a network charge based on the capacity agreed for your site, measured in kVA, and charged per day. It is passed through by your supplier from the local distribution network operator. It does not change with the amount of electricity you use.
What are excess capacity charges?
They apply when your actual draw goes above the agreed capacity. They are based on the difference between the two and are applied for the whole billing month in which the breach occurs. They are billed automatically, so you may only find out from the invoice.
Can I reduce my agreed capacity?
Often yes, by contacting your local DNO, usually through your supplier. Get a full year of half-hourly data first and keep a margin above your peak. If you draw more than the reduced figure later, excess charges can apply, so confirm the costs and the route back to a higher figure beforehand.
How do maximum demand charges relate to capacity charges?
Maximum demand is your highest measured half-hourly draw. Capacity is the contracted limit. You pay the capacity charge for the contract figure, and excess charges only if the maximum demand goes above it. Reviewing the two together is the quickest way to find savings or exposure.
How often should I review capacity?
At least once a year, and any time a site adds significant load or changes use. Tie it to your contract renewal so the figures are fresh when you negotiate.
Sources
- Electricity prices explained (EDF Energy)
- The charges for using Great Britain's electricity system (NESO)
- Capacity charges customer help guide, April 2023 (SmartestEnergy Business)
- Use of system charges statement, 1 July 2016 (Ofgem)
- DCP161 decision letter, 2014 (Ofgem)
- SSE response on excess capacity, 2006 (Ofgem)
- SCR Access and Forward-looking charges (NESO)
- Charging allocation by voltage of connection (National Grid)