Overview
Time-of-use pricing is exactly what it sounds like—the utility charges you more depending when the electricity is used in your home.
Time-of-use (TOU) is a rate plan in which charges vary depending on the time of day, season, and day type (weekday, weekend, or holiday). The time of day when energy consumption is highest is known as peak hours. This correlates to when people arrive home from work in the late afternoon or evening, they tend to use their appliances more frequently. Local utilities charge the highest fee for electricity usage during this time. Peak hours are commonly defined from 4 p.m. to 9 p.m..
Energy chargers are at their lowest during the late morning or early afternoon, when the demand for energy is lower since fewer people are at home.
Why Do Utilities Provide Time-of-Use Rates?
Prior to the introduction of TOU, the cost of electricity remained constant regardless of when you used an appliance. However, the demand for electricity on the grid is always changing.
If a large number of individuals in a certain area are all at home at the same time and doing things that require a lot of electricity, the grid may become strained. As a result, grid operators must request more power from producers than they require during low-demand periods.
This leads to utility companies incurring higher expenses if they want to generate additional capacity to satisfy peak demand, even if they don’t need to do so most of the time. As a result, they’ve found that encouraging consumers to regulate their own electricity usage is less expensive.
Net Metering and Time of Use Rates
Prior to TOU, calculating net metering credits before usage plans for homeowners with solar was simple: 1 kWh of electricity put onto the grid was worth 1 kWh you could use later.
The value of net metering has varied since the introduction of time-of-use rates: The credit you get for your surplus electricity depends on when you put it into the grid. As an example, adding 1 kWh to the grid during peak hours could result in a credit worth more than 1 kWh. Adding 1 kWh during super off-peak hours, on the other hand, might be worth less than 1 kWh of credit.
Let’s look at a sample scenario of a homeowner with solar installed. In the middle of 2022, summer off-peak rates are roughly $0.32 per kWh, while on-peak rates are $0.70. If the homeowner transmits one kWh of excess electricity into the grid around lunchtime, they will receive a $0.25 credit because it is during off-peak hours. If the homeowner’s solar panels don’t produce enough electricity later in the day and they need to consume one kWh of grid electricity around 5 p.m. and be charged $0.40 or more.
While they still get full credit for the surplus electricity produced, the TOU schedule means that not every kWh is worth the same.
So, is this a good or bad thing for homeowners?
For homeowners with solar, the fairness of TOU is in question. Within the confines of a TOU rate structure, homeowners potentially have more say over their bill by controlling how much electricity they use during peak and off-peak times. Of course, most customers are not going to the extreme of unplugging their refrigerator every day during peak hours or avoiding charging that brand new Tesla.
Making subtle changes may result in a difference, but it’s negligible in practice.
Our advice is to purchase a system that is oversized and can produce 150% of what your current use is. This will provide you protection for the inevitable higher future peak rates from SDG&E and the increased energy consumption that comes over time.