Time of use pricing
Most of us pay the same amount for the electricity our home uses regardless of when we use it. But the cost to generate and deliver that electricity to you can vary depending on the time of the day, day of the week, and the season. When demand for electricity spikes, say on a hot summer day when we’re all cranking our air conditioners, utilities will need to turn on their least-used electric plants to meet everyone’s demand. Electricity from these plants is often more expensive to generate and deliver.
This is why some utilities have developed a way of charging customers that reflects these changes. This is called time of use rates (TOU) or ‘time varying rates’.
The goal of a time of use structure is to change consumer behavior by charging more for electricity when demand is high and less when demand is low. When implemented well, time of use rates can help customers save money. Time of use rates can reduce stress on the electric grid while reducing the need to build more infrastructure and power plants. They also reward customers who can use smart appliances, rooftop solar, battery storage, and electric vehicles to use energy when it’s cheapest and conserve when it’s most expensive. Read below to learn how time of use rates work, how they impact solar, and how we can make time of use fair for everyone.
How do time of use rates work?
Time of use rates can vary according to the time of day, season, and even the kind of day (for example, weekday vs. weekend). Under a time of use rate structure, the price you pay for electricity increases at times when the demand for electricity is high. It decreases when the demand for electricity is low.
The variation between the high and low points of these rates will differ from utility to utility as they are dependent upon your location. Some regions see greater ‘peak demand’ for electricity in the winter for heating (for example, Boston). Other places see it in the summer (for example, Phoenix) for cooling. There are also variations during different times of day depending upon heating or air conditioning usage.
One utility that uses time of use rates is Fort Collins, Colorado. From May through September, Fort Collins homeowners pay a higher ‘peak’ rate for their electricity on weekdays between 2 p.m. and 7 p.m. The time window for peak rates the rest of the year is shorter. In these months, the peak is from 5 p.m. to 9 p.m. on weekdays.
How might a shift to a time of use rate impact my solar investment?
Time of use rates may influence the way your system is installed and your payback time. Installers will typically orient the system (which way the panels face and at what angle) to maximize the amount of energy it produces over a year. Everything else being equal, you will typically want your solar panels to face southward.
With time of use rates, you will want to orient the system to produce the most electricity when the cost of that electricity is highest. It may be better for your panels to angle toward the west. This will allow them to better capture sunlight toward the end of the day. This is when the demand and therefore the price for electricity is higher. In rare cases, east-facing panels may also produce power when electricity prices are higher.
What makes for a fair time of use system?
Time of use rates should be easy for customers to understand
Utilities should provide customers with resources to reduce their electricity bill. Customers should be armed with their usage data and the means to draw meaningful conclusions from that data when considering whether a time-of-use rate is right for them. Utilities that are considering time of use should show customers what their current bill would be with this new rate before they use the new rate. This called “shadow billing”. Shadow billing can help you understand how time of use rates would affect your monthly bill. It can also show you what actions have the most impact to reduce it.
Time of use rates should make it easy for customers to change their habits
Customers save money under time of use by shifting the time of day when they’re using a significant amount of electricity. This could mean waiting until the late evening to run the dishwasher or keeping the thermostat a degree or two higher on a warm day. Utilities should design their time of use rates so the electricity price spikes are short and once a day. This makes it easier for customers to adopt more energy efficient habits.
Time of use rates should maintain fair credit for solar and encourage all forms of energy independence
Solar homeowners should still receive the full retail value of the electricity their systems produce. They should not be targeted with reduced compensation or extra charges. Time of use should allow customers to use several technologies at once. Many solar owners also have battery storage or an electric vehicle. Utilities should establish time of use rates that allow these customers to maximize the value of all these investments.