What do the prices of movie tickets to Hollywood’s latest blockbuster and the cost of electricity have in common?
Utility companies all over the US are making big changes when it comes to their billing methods for residential customers. Similar to a blockbuster movie, where ticket prices change based on the time of day — matinees tend to be cheaper than primetime showings — many utility companies are moving towards billing customers based on energy used at specific times of the day.
Additionally, companies are starting to charge different rates for different types of consumers. Just like in movies where students and seniors can pay less for their tickets than others do, we see a similar phenomenon in utility companies across the country: For a given time period, consumers who use less than a baseline amount of energy can often pay less than those who use more than the baseline amount.
The illustration below shows how California’s Pacific Gas and Electric (PG&E) utility varies the cost of energy based on time of day and cumulative consumption.
Figure 1: A sample PG&E time of use rates. Source: www.pge.com.
Time of use rates glossary
There are quite a few terms that are critical to understanding time-of-use (TOU) rates.
What are peak hours?
Electricity costs more during certain designated “peak hours” for customers on a time of use rate plan. These hours are typically selected to coincide with the times when the demand for electricity is greatest (often in the afternoon/evenings and the summertime). For example, we can see in PG&E’s rate chart above, peak rates are in yellow and generally from 4pm – 9pm.
One reason for peak pricing is because utilities must have additional energy generation resources available to meet the needs of the grid during times when energy demand is highest. By pricing electricity higher during times that typically have the highest demand, TOU rates are intended to encourage customers to shift their energy usage to other periods. (It’s worth noting that TOU rates increase utility company revenue by making electricity most expensive when people are consuming the most.)
What are off-peak hours?
As you might have guessed, off-peak hours are the hours when electricity is less expensive. Customers who can shift some of their energy-using activities — like running the washing machine or charging an electric vehicle — to these off-peak hours can save on energy costs compared to peak hours.
What is time of use metering?
Time of use metering is the measurement that companies use to determine the amount of energy a customer uses, and the time of day they use it. You’ll likely notice that most houses and buildings have an electricity meter that measures that energy like a dial on a clock. That information is then used in the billing process.
How common are TOU rates? Where are they used?
California was among the first states to make time of use rate structures mandatory for customers. Back in 2019 and 2020, most residential customers were transitioned to TOU plans. All commercial, industrial, and agricultural customers are also required to be on one.
California is far from alone, however.
In early 2019, Ahmad Faruqui, Principal at the Brattle Group, told Utility Dive that “About half of U.S. investor-owned utilities have optional time varying rates for residential customers,” and that new programs are being tested or talked about in at least ten states.
Five years later, time of use rates — and similar billing programs — are much more common. To see what the utilities in your state offer, check out energy.gov’s listing of electricity pricing programs for each state.
How understanding TOU rates can help you get a solar sale
There’s no doubt that TOU rates can increase a homeowner’s electric bill.
So, while a homeowner’s system is generating the most energy, electricity rates are the lowest.
But during the evening, when the homeowner’s solar system isn’t generating as much energy, electricity rates are the highest.
Hmmmm. If only there was some way to store excess electricity generated during the day and use it, say, between 4pm and 9pm when electricity rates are the highest.
Solving for TOU rates: Battery storage and energy arbitrage
This is exactly what Aurora’s Energy Arbitrage solves. With energy arbitrage, installers can model PV systems with batteries that take advantage of TOU rates, rather than accepting that they’ll hurt the homeowner’s bottom line.
For example, if a customer would receive 4 cents per kWh of electricity sold to the grid in the middle of the day, but instead they could store it in a battery until the peak TOU window and offset consumption that would have cost 60 cents per kWh later in the day, they save 56 cents per kWh.
In the example below, our energy arbitrage modeling demonstrates how customers can store their energy for when it gives them the best savings:
- During the day, when export rates are low, the home is powered by solar (in yellow) and excess energy is used to charge the battery (in light blue).
- During the 5pm hour, consumption is met by solar the grid (dark red), even though the battery is completely charged to 100%. That’s because the electricity rate in this market is cheaper at 5pm than at 6pm.
- Then, between the hours of 6pm and 9pm — when rates are the highest — the homeowner’s consumption is fulfilled by the battery, so they can avoid paying for energy when it’s most expensive.
The bottom line? Energy arbitrage helps maximize ROI by making sure that the homeowner is replacing grid consumption at the highest rates with battery power — from a battery that was charged with excess solar energy from peak generating times.
A note on export rates and energy arbitrage
Some areas with TOU rates also have variable export rates — the amount homeowners are compensated for the solar energy they export to the grid. Variable export rates may change based on factors like time of day, and even time of year. This can be another important consideration for solar installations. To account for both TOU rates and variable export rates, Aurora has developed energy arbitrage. To get more details, check out our blog post: Optimize your ROI story with solar + storage for energy arbitrage.
Key takeaways
To summarize:
- Like the prices of movie tickets, under time of use rates, the cost of electricity varies based on the time a homeowner uses it.
- TOU rates are becoming more popular nationwide, making it imperative for solar installers to be familiar with them, be able to explain them to customers, and adjust their proposals so solar delivers maximum ROI.
- Aurora’s Energy Arbitrage features can provide homeowners more return on their solar + storage investment — and it can help you attach more storage to your solar sales.
Want to learn more about how you can use energy arbitrage to help your customers and sell more solar + storage? Schedule a quick chat with one of our experts to get all your questions answered.
NOTE: This was originally posted in 2021. We updated it in July 2024 to reflect the latest information.
Cover photo credit: NREL/DOE.
