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California’s Time-of-Use ENERGY Rates

Updated: Dec 4, 2023

For utilities, electricity is generally more expensive and complex to deliver when demand is high. To help cover these costs, California’s utilities have traditionally imposed Time-of-Use (TOU) rates, which created a daily schedule that applies different prices for power based on demand trends on the grid. When demand is highest, prices are highest under TOU rates. In the past, daily grid demand ramped up in the morning, peaked from noon into the early afternoon as temperatures and air conditioning usage increased, and then gradually decreased as the day progressed. Though there is some additional nuance to the scheduling, California’s utilities have long scheduled on-peak hours—during which rates were the highest—from around 11 am to about 6 pm. Off-peak hours, meanwhile, were generally applied through the other hours of the day. For utilities, TOU rates helped increase revenue to cover the high costs of delivering power when demand was high. For energy consumers, this created an incentive to minimize reliance on the grid for power during on-peak hours. This has long been a significant part of the value of on-site solar photovoltaics (PV) for the state’s large energy consumers. The hours when solar generation is at its highest levels happen to coincide with the on-peak hours, enabling large energy users to rely on their on-site solar power and avoid exposure to several hours of high on-peak rates every day. However, the rise of solar power generation in the state—both Behind-the-Meter (BTM) and at the utility scale—has disrupted the dynamics of the supply mix supporting California’s electric grid. Utilities are adapting to these new realities with changes to their TOU rate schedules, which will have a significant impact on the business case for behind-the-meter solar PV and Energy Storage Systems (ESS). The Impact of New TOU Rate Schedules on Solar PV and Energy Storage Under the new TOU rate schedules, peak production for a solar PV system will occur largely during the new off-peak hours at midday. This undercuts the value of stand-alone solar PV as a source for off-grid power to avoid on-peak rates. To illustrate the impact of the shift in TOU rates on a stand-alone solar PV system, analyzed was a 2-MW solar PV system installed at an office building with $1.2 million in annual energy spend, 7 GWh of annual energy usage, and a peak load of 1.6 MW. The latest TOU rate schedules reduce the value of the solar PV system by 19% over a 20-year period! However, combining solar PV with energy storage can enable large energy users to use their self-generated power more strategically. If customers can charge an Energy Storage System (ESS) with their on-site solar PV assets during off-peak hours, they can transition their facility onto that low-cost energy during on-peak hours. Distributed energy resources (DER) optimization software facilitates this process, charging the ESS with power generated via solar PV and automatically transitioning the facility’s load onto the on-site capacity available to reduce consumption from the grid when on-peak rates are applied. Looking at the same building analyzed above, adding a 500 kW/1 MWh ESS with the existing on-site solar PV actually makes up the value that the system would have lost as a result of the new TOU rate schedules. That equates to a difference of about $1.9 million. The shift in TOU rate schedules will also affect the business case for stand-alone energy storage. Again, DER optimization software plays an important role in managing these costs, automatically charging the batteries at times when power prices are lowest and deploying the power during on-peak hours. To understand the impact on energy storage, calculated was the value of a 630 kW/1 MWh stand-alone ESS for a food-processing facility with annual energy spend of about $650,000, annual usage of 3 GWh, and a peak load of 1 MW. For this facility, the new TOU rate schedules would increase the value of an ESS by 16%, resulting in more than $3.1 million in total value over a 20-year period. Article content courtesy of ENERGY Cost Savings For Facilities by Corey L. Wilson.

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