Time of Use Rates

Understanding Time of Use Rates, how they work, and the significant impact these rates can have on your monthly energy expenses

Time of Use Rates

Understanding Time of Use Rates, how they work, and the significant impact these rates can have on your monthly energy expenses

Many electricity providers introduced Time-of-Use Rates (TOU) in the early 2010s, but even after over a decade, the majority of homeowners remain unaware of the significant impact these rates can have on their monthly energy expenses.

What is TOU?

Time-of-Use rates were introduced by electricity providers to offer a dynamic electric rate schedule that adjusts prices based on the time of day and season. The goal is to align with grid demands and incentivize homeowners to consume more electricity during off-peak hours to avoid higher rates during peak-demand weekdays.

An example of this is the summer TOU rate plan offered by Southern California Edison (SCE), where electricity costs increase from 36 to 71 cents per kWh between 5 pm and 8 pm on weekdays.

However, for homeowners, time-of-use rates present both benefits and challenges. On one hand, they offer an opportunity to lower energy costs by shifting electricity consumption to off-peak hours. On the other hand, if homeowners are unable or unwilling to adapt to the rate schedule, it can lead to increased energy costs.

For instance, those who work from home have the flexibility to perform activities like laundry and charging electric vehicles during off-peak hours to avoid peak pricing. Conversely, individuals with regular commuting and work schedules between 8 am and 5 pm may find it more challenging to avoid peak pricing.

Another significant factor to consider is air conditioning, which is often the largest electrical load in households. By 5 pm, most people are back home after school or work, and the summer heat is at its peak. This is when homeowners typically turn on the AC, but it coincides with the onset of peak TOU rates. This creates a dilemma between maintaining a comfortable indoor environment and managing the utility bill.

However, with home solar power, this decision becomes easier as homeowners can confidently use their AC without worrying about skyrocketing utility bills.

How Do TOU Rates Work?

TOU rates simplify electricity pricing by charging different prices throughout the day, week, and season to match the demand. While specific TOU rate plans may vary depending on the region and utility company, certain terms remain consistent. Typically, there are separate TOU rate plans for summer and winter, with summer plans being more expensive. These plans typically include the following pricing segments:

Super off-peak: This period usually occurs when few people are at home, resulting in lower demand and lower rates. It is an ideal time for homeowners to use energy-intensive appliances and take advantage of the lower rates, effectively minimizing their monthly bills.

Off-peak: Off-peak hours are times when the demand for electricity is lower than average, but not as low as during super off-peak hours. Rates during this period are generally more favorable compared to peak and super-peak hours.

Peak: Peak hours represent periods of high electricity demand, typically occurring during the day when most people are actively using electricity. Rates during these hours tend to be higher to reflect the increased strain on the grid.

Super-peak: Super-peak hours are the most expensive period, characterized by the highest demand for electricity. This period often falls during times when people return home from work or school and typically use significant amounts of electricity for activities such as cooking, heating, and cooling.

To optimize energy consumption and minimize costs, homeowners can try scheduling their heating and cooling systems to run early or mid-morning. This allows them to pre-cool or pre-heat their homes and set the temperature to a comfortable level during the peak hours of the day. However, it's important to consider health restrictions and limitations when adjusting temperature settings. By leveraging these strategies, homeowners can take advantage of the pricing segments and effectively manage their energy usage and expenses.

What Time of Day is Electricity Cheaper?

Electricity costs are usually more affordable during the late evening and early morning hours when the demand on the grid is lower. This decrease in demand leads to a drop in pricing.

Certain home appliances, such as central air systems, water heaters, dishwashers, and clothes dryers, consume a significant amount of energy. Running these energy-intensive appliances during the cheaper Off-Peak hours can result in cost savings for homeowners. Conversely, using these appliances during Peak hours, typically in the late afternoon to mid-evening, will incur the highest rates.

Can Solar Panels Lower My Utility Bill Under TOU Rates?

Certainly, home solar power can significantly reduce your electricity costs, even if you have a time-of-use rate plan with your utility provider. There are two primary ways that solar can help in lowering your bill:

  1. Net metering with TOU rates: If your utility offers net metering, you can earn credits for any excess electricity your solar panels produce. These credits are based on the retail rate of electricity at the time of production and can be used to offset the cost of electricity you draw from the grid when your panels are not generating power. By sizing your solar system to fully offset your electricity consumption, you can potentially eliminate or substantially reduce your utility payments.

In some cases, there may be a small amount of electricity consumption that you need to pay for if the value of your solar exports does not completely cover the cost of grid imports.

  1. Battery storage with TOU rates: Not all homeowners have access to net metering, which makes battery storage a valuable option for avoiding TOU rates and further reducing energy costs. For instance, certain regions like California's investor-owned utilities now have solar billing structures, such as NEM 3.0, which offer lower export rates than the retail rate for electricity.

Under such billing structures, it becomes more advantageous to store and use your own solar-generated electricity rather than exporting it to the grid. This is where battery storage systems come into play. By having battery storage, you can significantly reduce your reliance on the grid and draw minimal or no electricity during peak and off-peak hours. NEM 3.0 is designed to provide greater savings for solar + battery systems compared to solar-only systems.

Overall, whether through net metering or battery storage, home solar power can offer substantial savings by mitigating the impact of TOU rates and allowing homeowners to generate and utilize their own electricity efficiently.

I hope that you now have additional knowledge that can empower you to make informed decisions regarding your energy consumption.

It's important to be proactive and engaged in finding ways to contribute towards helping the environment. Taking small steps, such as adopting a time-of-use rate plan with your utility company, can potentially make a difference in your energy bill. However, it's worth noting that not all utility companies offer the same options, so it's essential to review and explore all available choices to find the one that best suits your needs.

The more knowledge we have, the better equipped we become to make conscious decisions that benefit both our environment and our families. By staying informed and actively participating in energy-related choices, we can contribute to a greener and more sustainable future. If you’d like to schedule a call to learn how we can help you, please contact us today