{"id":684,"date":"2025-01-02T14:00:45","date_gmt":"2025-01-02T14:00:45","guid":{"rendered":"https:\/\/aurorasolardev.wpengine.com\/blog\/how-time-of-use-rates-work\/"},"modified":"2025-01-03T20:54:30","modified_gmt":"2025-01-03T20:54:30","slug":"how-time-of-use-rates-work","status":"publish","type":"post","link":"https:\/\/aurorasolar.com\/blog\/how-time-of-use-rates-work\/","title":{"rendered":"What are time-of-use rates? Your guide to TOU"},"content":{"rendered":"

To get the year started off right, we’re highlighting some of the solar-related concepts that we think are particularly important to understand in 2025. First up: time-of-use rates. See how they work, how they affect consumers, and how solar + storage can help. We updated this post from early 2024 to reflect the latest information.<\/em><\/p>\n

What do the prices of movie tickets to Hollywood\u2019s latest blockbuster and the cost of electricity have in common?<\/span><\/p>\n

Utility companies all over the U.S. 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 \u2014 matinees tend to be cheaper than primetime showings \u2014 many utility companies are moving towards billing customers based on the time of day energy is used.\u00a0<\/span><\/p>\n

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Want to learn more about how the right TPO options can increase your sales? Click the image to get the free TPO Cheat Sheet.<\/figcaption><\/figure>\n

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Companies are also 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.\u00a0<\/span><\/p>\n

The illustration below shows how California\u2019s Pacific Gas and Electric (PG&E) utility varies the cost of energy based on time of day and cumulative consumption.<\/span><\/p>\n

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\nA sample PG&E time of use rates. Source: www.pge.com.
\n<\/em><\/span><\/p>\n

Time-of-use (TOU) rates glossary<\/span><\/h2>\n

There are quite a few terms that are critical to understanding time-of-use (TOU) rates.<\/span><\/p>\n

What are peak hours?<\/span><\/h3>\n

Electricity costs more during certain designated \u201cpeak hours\u201d 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<\/a>, peak TOU rates are in yellow and generally from 4pm – 9pm<\/span>.<\/span><\/p>\n

One reason for peak pricing is because utilities must have <\/span>additional energy generation resources available to meet the needs of the grid<\/span><\/a> 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.)\u00a0<\/span><\/p>\n

What are off-peak hours?\u00a0<\/span><\/h3>\n

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 \u2014 like running the washing machine or charging an electric vehicle \u2014 to these off-peak hours can save on energy costs compared to peak hours.\u00a0<\/span><\/p>\n

What is time of use metering?<\/span><\/h3>\n

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 m<\/span>ost 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.\u00a0<\/span><\/p>\n

How common are TOU rates? Where are they used?<\/span><\/h2>\n

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.\u00a0<\/span><\/p>\n

California is far from alone, however.\u00a0<\/span><\/p>\n

In early 2019, Ahmad Faruqui, Principal at the Brattle Group, <\/span>told Utility Dive<\/span><\/a> that \u201cAbout half of U.S. investor-owned utilities have optional time varying rates for residential customers,\u201d and that new programs are being tested or talked about in at least ten states.\u00a0<\/span><\/p>\n

Five years later, time of use rates \u2014 and similar billing programs \u2014 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<\/a>.<\/p>\n

How understanding TOU rates can help you get a solar sale<\/span><\/h2>\n

There’s no doubt that time-of-use rates can increase a homeowner’s electric bill. <\/span><\/p>\n

So, while a homeowner’s system is generating the most energy, electricity rates are the lowest.<\/p>\n

But during the evening, when the homeowner’s solar system isn’t generating as much energy, electricity rates are the highest.<\/p>\n

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.<\/p>\n

\"Image<\/a>
Click the image to get the free TPO Cheat Sheet.<\/figcaption><\/figure>\n

Solving for TOU rates: Battery storage and energy arbitrage<\/h2>\n

This is exactly what Aurora’s Energy Arbitrage solves. With energy arbitrage, installers can model PV systems with batteries that take advantage<\/em> of time-of-use rates, rather than accepting that they’ll hurt the homeowner’s bottom line.\u00a0<\/span><\/p>\n

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.<\/p>\n

In the example below, our energy arbitrage modeling demonstrates how customers can store their energy for when it gives them the best savings:<\/p>\n