Contract Demand

What contract demand is

Contract Demand (CD) is the maximum electrical demand in kilovolt-amperes (kVA) that a HT (high-tension) or large LT consumer has contractually agreed with the DISCOM to draw from the grid. The contract specifies an upper limit; the consumer is permitted to draw up to that limit without penalty.

Contract demand applies to commercial, industrial, and institutional consumers above defined size thresholds. Small residential consumers typically have sanctioned load (in kW) instead. The dividing line between sanctioned load and contract demand varies by state but is typically around 25 kW (or 30 kVA) connected load.

For HT consumers (above 11 kV), contract demand is the principal capacity parameter. The DISCOM provisions the transformer, switchgear, and feeder for the contract demand, and the consumer pays a monthly fixed charge based on it.

Contract demand and the bill

A typical HT consumer’s electricity bill shows:

Contract Demand: The contractually agreed maximum kVA (e.g., 500 kVA).

Maximum Demand: The highest recorded kVA in the month (e.g., 475 kVA).

Demand Charges: Fixed charges based on contract demand (e.g., Rs 350 per kVA per month).

Energy Charges: Variable charges based on kWh consumed.

Penalty (if any): If maximum demand exceeded contract demand, a penalty multiplier on the excess.

For a 500 kVA contract demand at Rs 350 per kVA per month, monthly demand charges are Rs 1.75 lakh. Over a year, Rs 21 lakh in fixed demand charges alone.

Contract demand and rooftop solar

For C&I rooftop solar, most state SERCs cap the solar capacity at the contract demand (or a percentage of it, typically 80% to 100%).

A 500 kVA contract demand consumer can typically install up to 500 kWp solar (with state-specific rules on whether the reference is kVA, kW, or a percentage).

The reasoning is similar to sanctioned load:

The DISCOM connection is sized for the contract demand.

Solar export above this would stress the connection.

The transformer and feeder are also sized accordingly.

For larger solar installations, the consumer may need to:

Enhance contract demand (more expensive than load enhancement for LT).

Install solar at a different connection or as ground-mount with separate evacuation.

Use open-access solar from off-site generation.

Contract demand reduction

If a consumer’s actual consumption is much lower than contract demand, they pay for capacity they do not use. Application to reduce contract demand can lower fixed charges.

The DISCOM may agree to a reduction if:

The consumer’s actual maximum demand over recent months has been well below contract demand.

The DISCOM has the flexibility to reallocate the freed capacity to other consumers.

The consumer formally documents the new (lower) operational profile.

Reduction is typically processed within 1 to 3 months. The lower fixed charge starts from the next billing cycle.

For solar adopters, reducing contract demand is sometimes considered, but careful analysis is needed. Solar reduces energy (kWh) but not necessarily peak demand (kVA), which may continue near the contract demand level.

Contract demand and demand charges by state

These are illustrative ranges. Specific rates depend on consumer category and apply per SERC tariff orders.

Solar plus storage and contract demand

Solar net metering by itself does not reduce contract demand. The customer’s peak demand during periods when solar is not generating (evenings, monsoon, after sunset) remains close to original levels, requiring continued contract demand.

Solar plus battery storage can shave peak demand. The battery discharges during peak hours, reducing grid draw and lowering the recorded maximum demand. Over months, this can justify a lower contract demand.

For C&I consumers paying significant demand charges, the combination of solar plus storage delivers two benefits:

Energy cost reduction (solar offsets daytime grid).

Demand cost reduction (battery shaves peak from grid).

The combined economics often justify the storage investment for high-demand-charge consumers.

Contract demand penalty examples

For a consumer with contract demand of 500 kVA and recorded maximum demand of 600 kVA:

Standard demand charge: 500 kVA times Rs 350 = Rs 1,75,000.

Excess: 100 kVA.

Penalty multiplier (varies by state, typically 1.5x to 2x): 100 kVA times Rs 350 times 1.75 (typical) = Rs 61,250.

Total demand charge for the month: Rs 2,36,250.

Sustained excess for multiple months may trigger formal contract demand revision, with one-time enhancement charges.

Common mistakes with contract demand

Setting contract demand too low to save on fixed charges, then triggering frequent penalties.

Setting contract demand too high to avoid penalties, paying for unused capacity.

Forgetting that solar net metering does not automatically reduce contract demand.

Ignoring power factor correction; poor power factor inflates kVA demand for the same kW load.

Mismatching solar capacity to contract demand limit. Some sites have stranded solar capacity because contract demand was not enhanced.

Best practices

Review last 12 months of maximum demand history to set contract demand appropriately. Target 90% to 95% utilisation typically.

Install power factor correction equipment to keep PF above 0.95, reducing kVA demand for the same kW.

For solar planning, verify that planned solar capacity is within contract demand or apply for enhancement before solar installation.

For high-demand sites, evaluate solar plus storage as a combined approach to reduce both energy and demand charges.

Engage the DISCOM proactively when expanding operations. Contract demand revisions are smoother when planned in advance.

Standards and references

Contract demand is governed by state DISCOM tariff orders under SERC framework, the Electricity Act 2003, and CEA Connectivity Regulations 2019. Each state’s industrial tariff schedule details demand charges and penalty mechanisms.

Related glossary terms

• Sanctioned Load
• HT vs LT Connection
• Time of Day Tariff
• kWh vs kW
• DISCOM
• Net Metering
• Power Factor
• Maximum Demand Penalty

Key takeaways

Contract Demand (CD) is the maximum electrical demand in kVA that an HT or large LT consumer agrees with the DISCOM to draw from the grid. It is the basis for fixed demand charges, peak protection, and (for solar) the cap on rooftop solar capacity. Demand charges range from Rs 250 to Rs 550 per kVA per month across Indian states. Solar net metering by itself does not reduce contract demand because peak demand persists in non-solar hours. Solar plus battery storage can shave peak demand and reduce contract demand requirements.