Why Demand Charge Rate Increases in Ontario Mean You Should Be Installing Batteries

Ontario Class B customers — commercial accounts drawing 50 kW to 999 kW — pay two separate electricity charges. One tracks the volume of energy consumed (kWh). The other tracks the highest power draw recorded in the billing period (kW). Over the next five years, those two charges will move at very different rates. Understanding why, and designing proposals accordingly, is the difference between a good solar project and a strong energy management investment.

Ontario electricity bills summarize charges without explaining how they are calculated. Two metrics drive the bill:

• ▸kWh — energy volume. The total electricity consumed during the billing cycle. Charges billed against this number are Energy Charges.
• ▸kW — peak demand. The highest rate of power draw recorded in the billing cycle. Charges billed against this number are Demand Charges.

The demand charge is determined by the single highest 15-minute interval in the month. A business that draws 200 kW for one hour and 50 kW for the remainder of the month pays demand charges calculated against 200 kW. The bill does not distinguish between a sustained peak and a momentary spike.

2.1Energy Charges (kWh) — IESO-regulated, volatile

Energy charges are governed by the IESO, Ontario's electricity system operator. The primary components for most Class B accounts are:

• ▸HOEP (Hourly Ontario Energy Price). The hourly wholesale market price, set by supply and demand. Class B customers pay the monthly average HOEP per kWh — not the real-time spot price.
• ▸GA (Global Adjustment). The gap between the HOEP and the contracted or regulated rates paid to generators, plus conservation program costs and market operations fees.
• ▸Regulatory add-ons. Small fixed per-kWh charges: Wholesale Market Service (WMS), Capacity Based Recovery (CBR), RRRP, and a Hydro One GA rider.

Energy charges since 2020 have been volatile, not directional. The Ontario government cut rates during the 2021 COVID relief period. They climbed back the following year, then fell again in 2024. Over the five-year window, the all-in energy charge is lower today than it was in 2020.

2.2Demand Charges (kW) — utility-set, one-directional

Demand charges are set by Local Distribution Companies (LDCs) — the utilities that own the poles and wires — subject to approval by the OEB. Utilities justify increases as recovery for infrastructure investment and maintenance. The incentive structure gives them every reason to apply for rate increases, and the OEB has approved them consistently.

The table below shows aggregated demand charges for Hydro One's General Service Demand (GSD) rate class — the tariff that covers most 50–999 kW commercial accounts. The total reflects Distribution, Retail Transmission Network, and Retail Transmission Line charges combined.

Solar panels reduce the kWh a facility draws from the grid. They cannot respond to a demand spike. If production is cloudy, or the peak occurs at night, the demand charge registers at full grid draw regardless of how much solar the site has installed.

A battery changes the math. Sponge dispatches the battery using demand charge reduction — also called peak shaving. The controller monitors the facility's grid draw in real time and discharges the battery whenever consumption approaches the target threshold. The peak is capped. The demand charge is capped.

For EPCs, this reframes the proposal. A load displacement and battery project — solar reducing energy volume, a Sponge-managed battery capping peak demand — builds a hedged position against both charge types. Ontario's incentive environment is making this configuration increasingly competitive against net metering.

Most batteries ship with basic peak-shaving programs. Sponge extends that baseline on three fronts.

1. 01Multi-strategy dispatch. Sponge Optimization uses production and load forecasts, recalculated every 10 minutes, to run multiple strategies in the same billing period. A single battery can capture excess solar and execute peak shaving simultaneously. No other controller in the Ontario Class B market does both. The additional savings make a Sponge-managed proposal the strongest offer in the room.
2. 02Adaptive peak threshold. Sponge's predictive forecasting detects shifts in load patterns — seasonal changes, operational expansion, new equipment — and adjusts the maximum grid draw threshold automatically. Savings hold as the business changes. The installer does not revisit the site to update inverter settings.
3. 03Economic modelling for the sales process. Sponge models the return on a battery investment before the hardware is ordered. Upload the site's interval load data and Sponge simulates PV and battery savings against the actual rate schedule — outputting payback period, bill reduction percentage, ROI, and NPV. The proposal the customer signs is built on real numbers, not averages.

Ontario is entering a load growth period for the first time in roughly 30 years. For three decades, modest growth in electricity consumption was offset by efficiency gains — LED retrofits, better appliances, tighter industrial controls. Net electricity demand was flat.

That is changing. Data centres, EV charging infrastructure, and industrial electrification are adding load faster than efficiency improvements can absorb it. The generating cost of the next kWh — particularly from wind and solar at today's contracted rates — is not rising. The cost of building the infrastructure to move that kWh from generator to customer is.

LDCs are regulated on a capital expenditure rate base. Their primary mechanism for recovering infrastructure investment is the demand charge. A growing network of larger transformers and heavier distribution lines raises the LDC's cost base, which flows through to the $/kW line on the commercial bill. The OEB approves these tariff applications. The customer absorbs the result.

A solar proposal that does not address demand charges will close on a shrinking portion of the customer's bill every year. A proposal that pairs solar with a Sponge-managed battery addresses both sides of the ledger — and builds in the control intelligence to protect those savings as rates and load patterns shift.