Time-of-use (TOU) pricing is a rate structure used by electric utilities where the price of electricity changes throughout the day to match demand. By charging more during periods of high demand, utilities incentivize their residential customers to shift some of their energy use to other parts of the day. Residential time-of-use pricing has been gaining traction with utilities around the country, and Colorado is a part of this trend.
In 2019 Xcel Energy, Colorado’s largest electric utility, filed a proposal to start using time-of-use pricing for its 1.4 million customers. The decision now rests with the Colorado Public Utilities Commission (PUC), which is the regulatory body for investor-owned electric utilities in the state. If approved, the time-of-use pricing would begin replacing the current summer tiered rate structure in 2021.
Time-of-use pricing has already been adopted by the municipal utilities of Fort Collins and Colorado Springs, as well as several rural electric cooperatives in the state. If Xcel Energy does get approval, then the majority of residential electricity provided in Colorado will be subject to time-of-use pricing.
Is this a good thing? Does it mean more expensive monthly energy bills? What effect does residential solar have on time-of-use rates?
The good news is that public utility commissions do not approve rate changes willy nilly. There must be sufficient evidence that any rate change still results in reliable and reasonably priced services for residents. To provide this evidence, Xcel Energy conducted a two-year opt-in trial of residential time-of-use pricing. Data from these pilot programs could be a good indication of the effects a time-of-use rollout would have on Colorado at large.
TIME-OF-USE PILOT PROGRAM RESULTS
Xcel Energy’s pilot program was approved by the Colorado Public Utilities Commission in November of 2016 and included an initial 10,000 participants. The pilot program results showed that customers with solar power systems had the biggest average reduction of peak energy consumption, at 29%.
Electric vehicle (EV) owners had the next highest peak consumption reduction, with 13%. Since EVs are often charged during off-peak night hours, those households often benefit from cheaper rates. For those customers without solar or electric vehicles, the average peak consumption reduction was 3%. So all told, solar or not, time-of-use pricing did successfully shift some of the peak energy demand, saving homeowners money on their electricity bill thanks to variable rates and reducing strain on the grid during peak demand times.
A key component of the pilot program, and the eventual time-of-use rollout, if approved, is upgraded smart meters for every participant. The new meters give customers access to more information about their energy use and provide the utility with the real-time data needed to make time-of-use rates possible.
Often, a favorite part for pilot program participants was gaining more control over their bills. A time-of-use rate structure means that a homeowner’s actions have an even greater impact on their monthly bills, including deferring energy use to a later time. Customers who are informed and attentive can use the extra energy insight to their advantage and keep their electric charges low.
SAVING MONEY IN TIME-OF-USE RATES
Part of the appeal of time-of-use pricing is that it rewards customers for paying attention to their energy use. Those efforts are made easier with smart meters, user-friendly internet tools, and effective communication from utilities.
The strategy is simple. Customers save money by limiting their energy use during on-peak periods, which Xcel has set as weekdays 2-6 p.m. Avoiding or shifting the use of high energy appliances to off-peak or shoulder periods, therefore, has a big impact.
Air conditioning is often the biggest summer energy user. Pre-cooling your home before the start of a peak period and relying more on fans for home cooling helps limit your AC energy use. Similarly, limiting on-peak heating in the winter will help those with electric heaters. Other heavy energy appliances to use strategically include washers, dryers, and electric ovens.
These tips can all help to some degree, but as seen in the pilot program results, a solar power system plays a pivotal role in reducing peak consumption.
SOLAR, STORAGE, AND TIME-OF-USE RATES
Time-of-use rates boost the value of solar-generated electricity if it is available for on-peak usage. If the sun is shining during on-peak periods, then homeowners with solar are offsetting electricity that could be three times more expensive.
Traditionally, solar power systems are designed to maximize production for as much of the day as possible. However, systems can also be specifically designed to take advantage of time-of-use rates. These arrays are optimized for more solar production later in the day to improve on-peak overlap.
Time-of-use rates do add more variability to solar payback period estimates, with energy savings generated by the solar panels being dependent on when customers use their energy. When creating payback projections for customer solar quotes, IPS takes this into account along with the historical customer energy data.
Energy storage is another effective strategy for taking advantage of a time-of-use pricing structure. A battery storage device integrated with a home solar power system makes it even easier to limit energy use during on-peak periods. Solar panels can generate during prime conditions in the middle of the day, store it, and put it to use when it is needed most during on-peak periods by allowing for self-consumption.
Utilities are looking at time-of-use pricing as a way to better manage peak demands for the grid, and to more accurately charge for the cost of generating electricity. Time-of-use rates also give new value to saving money through home solar power systems and energy storage. If you would like to learn more about how home solar can impact your energy costs, please reach out to one of our experts at Independent Power Systems today!