What are capacity charges and what does kVA mean?

If your bill includes a capacity or “availability” charge, it is not for energy you used. It is for having a connection capable of drawing up to a set maximum at any moment, agreed in advance with your local electricity distributor. This guide explains what that capacity figure means, how it is charged, and what happens if your business ever draws more than it agreed.

What is agreed supply capacity?

It is the maximum amount of electricity, in kVA, that your connection is allowed to draw from the network at any one time. National Grid Electricity Distribution, one of Great Britain’s regional distributors, describes this as your Maximum Import Capacity (MIC): “the peak power your property can draw from the network at any time, measured in kiloVolt-Amps (kVA).” Sites that also export electricity, for example through on-site generation, have a separate Maximum Export Capacity (MEC), agreed the same way.

Both figures are set out in your connection agreement with your distribution network operator (DNO), the company that owns and runs the physical wires in your area, which National Grid Electricity Distribution confirms is separate from your supply contract with your energy supplier. Your MIC and MEC “will be stated within your Connection Agreement,” and may also be repeated in your supply contract for reference.

Why is capacity charged separately from the energy I use?

Because the network has to be built and maintained to handle your peak demand, not just your average usage. A distributor has to size the cables, transformers and substations serving your premises for the maximum draw you might reasonably need, which is a cost that exists whether you use that capacity constantly, rarely, or not at all in a given month. Capacity charges recover that cost, and National Grid Electricity Distribution confirms they are collected through Distribution Use of System (DUoS) charges, billed by the DNO to your supplier and passed on to you.

This is why two businesses using the same total kWh in a month can pay different capacity charges: the one that draws power in short, high bursts needs a higher agreed capacity, and therefore pays more for it, than one that draws the same total steadily across the day. Our kW vs kWh guide explains this distinction between the rate and the quantity of energy used.

Think of it as similar to a water pipe. A wider pipe costs more to install and maintain than a narrow one, regardless of how much water actually flows through it on a given day, because the pipe has to be able to cope with the heaviest flow it might ever need to carry. Your agreed capacity works the same way: it is sized, and charged, for your peak potential draw, not your day-to-day usage.

A worked example of how a capacity charge might apply

This is an illustration only, with made-up figures to show the mechanics, not a real tariff. Say a business has agreed a supply capacity of 100kVA, at an example DNO rate of £1.50 per kVA per month. Its capacity charge would be 100 x £1.50 = £150 a month, regardless of whether its actual peak demand that month was 95kVA or 40kVA. If the same business had a spike in demand that reached 110kVA, the 10kVA above its agreed capacity would be charged at whatever higher excess rate its DNO applies, on top of the standard £150. This is why the standing element of a capacity charge does not move with a quiet month, and why a single unusual peak can add a separate, higher-rate charge for that period.

How is the capacity charge worked out?

Your DNO sets a rate per kVA of agreed capacity in its published charging statement, and that rate typically applies as a monthly or annual standing charge, independent of your kWh usage. Because there are 14 regional DNOs across Great Britain, each maintaining a different network with different costs, the rate per kVA varies from region to region and is published separately by each one, alongside its other DUoS charges. Our guide to non-commodity costs covers DUoS and the other network charges that sit alongside your capacity charge.

What happens if you exceed your agreed capacity?

You are charged more for the amount by which you went over it. Ofgem approved an industry rule change, known as DCP161, on 15 October 2014, to “improve the cost reflectivity of the excess capacity charge calculation” within the charging methodologies used by DNOs. Implementation was deferred more than once and eventually took effect from 1 April 2018, following a request from Western Power Distribution that Ofgem confirmed in a decision letter.

In practice, this means demand above your agreed capacity is charged at a higher rate than demand within it, rather than simply being averaged into your normal capacity charge. If your business regularly exceeds its agreed capacity, the higher rate on the excess, applied every time it happens, can add up to more than the cost of formally increasing your capacity in the first place.

Does gas have an equivalent charge?

Not in the same form. Gas connections are sized around a different measure, typically an Annual Quantity (AQ) or Supply Offtake Quantity (SOQ) rather than a real-time capacity figure like kVA, because gas can be drawn from and buffered within the pipeline network in a way electricity cannot. There is no direct gas equivalent of a capacity standing charge working the same way as the electricity version described in this guide, though gas transportation charges do still vary with your consumption profile. If you want the detail on how a gas meter reading translates to kWh in the first place, see our guide to converting a gas meter reading to kWh.

How does half-hourly metering affect capacity charges?

If your site has a half-hourly meter, your DNO and supplier can see your actual demand in each 30-minute settlement period across the month, rather than a single estimated or manually read total. This is what allows a DCP161-style excess charge to be applied accurately to the specific periods where you went over your agreed capacity, rather than as a rough estimate. It also means that if you are reviewing whether to change your agreed capacity, half-hourly data gives a much clearer picture of your genuine peak demand than a standard meter reading would.

Should you increase or reduce your agreed capacity?

It depends on how your actual peak demand compares with what you have agreed. National Grid Electricity Distribution says “customers may benefit from reducing their capacity if their capacity charge is higher than the actual amount of energy they are using,” which is worth checking if your usage has fallen, for example after closing a site, removing equipment or improving efficiency.

Before reducing your capacity, be aware of the practical constraints National Grid Electricity Distribution sets out:

• Reducing capacity is free, since no physical network work is usually needed.
• You cannot reduce it again for 12 months once you have made a change.
• Increasing it again later may cost money, because “once your capacity is reduced it is released back into our network and may be used by others,” so getting it back is treated as a new capacity request, not a simple reversal.
• Increasing your capacity may require network reinforcement work if the extra capacity is not readily available in your area, which can add cost and time to the request.

Given these constraints, it is worth basing any change on a genuine, sustained view of your peak demand, using at least several months of meter data, rather than a single unusual month. A few practical checks before you apply:

1. Look at your actual peak, not your average. A capacity review should be based on the highest demand you realistically expect, including seasonal peaks, not a typical or average reading.
2. Account for planned changes. If you are adding equipment, expanding a kitchen, installing EV chargers or adding air conditioning, factor that future demand in before reducing capacity, since a reduction is fixed for 12 months.
3. Check whether recent excess charges are a pattern or a one-off. A single unusual spike may not justify a permanent increase; a repeated pattern across several months usually does.
4. Ask your supplier for your DUoS and capacity charge lines separately, if your bill does not already show them, so you know what you are actually paying per kVA before deciding whether to change it.

If you operate more than one site, each connection has its own agreed capacity and its own capacity charge, so a review is worth doing site by site rather than assuming one figure fits every location. Our guide to multi-site business energy covers managing several connections together.

How do you check or change your capacity?

Contact your distribution network operator, not just your energy supplier. Your DNO is determined by where your premises are, and the first two digits of your electricity meter’s MPAN identify which of the 14 regional distributors covers you. National Grid Electricity Distribution, for example, runs an online application process for both increases and reductions, and will review your historical meter data before agreeing a new figure. Your supplier can often point you to the right process, or act for you if you ask, but the decision and the connection agreement itself sit with the DNO.

How does this relate to kW and kVA more generally?

kVA is not quite the same as kW. kVA measures apparent power, the combined effect of the power that does useful work (measured in kW) and reactive power, which some equipment draws without doing useful work but which still uses up capacity on the network. A business with poor power factor, often caused by certain types of motor or older equipment, can end up needing a higher kVA capacity than its useful kW output alone would suggest, which increases its capacity charge without increasing the energy it actually gets to use. Our guide to reactive power charges explains this in detail, including how power factor is measured and what can be done about it.

What this means for your bill

Capacity charges reward businesses whose agreed capacity matches their real peak demand, and penalise both ends of the mismatch: too little capacity risks the higher DCP161 excess rate, while too much means paying month after month for headroom you never use. Reviewing your capacity against a recent, representative set of meter readings, ideally before a contract renewal, is one of the more overlooked ways to check whether you are paying for more network access than you need. Our guide to reducing business energy costs covers this alongside other ways to bring non-energy charges down.

When you are ready to see how these charges appear in a real quote, you can compare business energy quotes with us.

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