Understanding Time-of-Use Rates: A Guide to Saving on Your Energy Bills

What Are Time-of-Use Rates

Utility companies nationwide are beginning to revolutionize billing methods for residential customers. Innovative rate structures like time-of-use (TOU) incentivize customers to change their energy habits by consuming more electricity during low-demand periods and discouraging energy use during expensive peak hours, ultimately reducing monthly energy expenses while relieving strain on the grid.

This blog post will explain what TOU rates are and how you can start saving on your monthly electricity bills with a few simple changes.

How Do Time-of-Use Electricity Rates Work?

Traditionally, utilities have charged residential customers a fixed flat rate per kilowatt-hour, adjusted once or twice annually. In the early 2010s, electricity providers started implementing TOU rates that vary based on the time, day, or season in which the energy was consumed to account for the dynamic cost of generating electricity. 

Yet even after more than a decade, many homeowners remain uninformed about TOU rates and their potential to significantly lower monthly energy expenses. The Energy Information Association (EIA) found that while 62% of U.S. residential customers have access to TOU programs, only 7.3% are currently enrolled.

TOU electricity rates vary to align with the demand on the utility for power. For instance, during periods of low demand, such as late at night, the TOU rate would also be lower, saving customers money on their energy bills. 

Why Are Time-of-Use Rates Necessary?

With the adoption of electric vehicles, heat pumps, and other electric appliances, we are now using more electricity than ever before. This growing demand, coupled with changing market dynamics due to the integration of solar and wind power, has led to the development of new time-based utility billing structures. 

TOU electricity rates are essential for modernizing the grid, reducing peak energy consumption, and enhancing grid resilience, all while saving customers money. TOU rates help accelerate the clean energy transition by alleviating strain on congested grids and balancing supply and demand fluctuations. This imbalance can be seen in the "duck curve" effect, where solar production peaks mid-day when electricity demand is low, and vice versa in the evening, challenging grid operators to ramp up production and raise electricity rates.

Link to image: https://www.eia.gov/todayinenergy/detail.php?id=56880 

How Can TOU Help You Save Money?

When you use electricity is just as important as how much electricity you use. Customers can significantly benefit from a TOU plan by making simple changes to their energy habits, like doing laundry, running the dishwasher, and charging an EV during off-peak hours when electricity is the least expensive. 

Here are some ways you can start saving with TOU rates:

• Maximize electricity use during off-peak hours: Strategically use energy-intensive appliances during off-peak periods to significantly lower your electricity bill. Many appliances have smart scheduling capabilities so you can automatically program your thermostat to pre-cool your home or run your dishwasher outside peak hours.
• Utilize home battery solutions: Charge your home battery during off-peak hours and use the stored energy during peak demand hours to avoid expensive energy costs. Batteries can also act as robust home backup generators to protect against unexpected power outages and blackouts. 
• Install solar-plus-storage: The best way to optimize TOU rates is to install solar panels with batteries. Solar-plus-storage can potentially eliminate all peak-hour charges, and you can even earn credits by selling excess electricity back to the grid for additional revenue.

When Are the Peak Hours For Electricity? 

TOU plans differ based on the utility company and location; however, peak hours are generally on weekdays from 4 to 9 pm when people come home from work. During the summer, electricity prices are also more expensive to account for the higher demand from running power-hungry air conditioners. 

For instance, Pacific Gas & Electric (PG&E) has three different residential time-of-use plans. On-peak hours are from 4–9 pm every day or 5–8 pm only on weekdays, with peak pricing varying from 30 to 49 cents per kWh. During off-peak hours, electricity rates are lower, ranging from 28 to 42 cents per kWh, depending on the time, day, and season.

What Is The Best Time-of-Use Plan For Solar?

Customers can invest in solar to further enhance their benefits from a TOU rate. Especially when paired with batteries, solar-plus-storage allows customers to potentially offset their peak electricity consumption completely. 

With some TOU plans, customers can also sell their excess solar energy to the grid during peak hours and receive up to $3/kWh (ten times more than the average rate) with California's Net Energy Metering (NEM) 3.0. For other billing structures, it would be more advantageous to store excess energy in batteries for personal use during on-peak hours for greater savings. 

Contact your local utility to determine which TOU plan best fits your needs and maximizes your solar savings.

Is a Time-of-Use Structure Right For Me?

Deciding whether or not to switch to a TOU plan can be complicated since each household is unique. For those who work a 9 to 5, adjusting to the off-peak schedule can be more difficult than for someone who works from home with more flexibility. On the other hand, someone with an EV would benefit considerably from a TOU plan, as charging their vehicle can easily double a household’s electricity bill—presenting an excellent opportunity for TOU savings. 

Customers must first conduct a preliminary analysis to better understand how TOU rates will affect their future bills. While TOU rates have the potential to lower electricity costs, the new rate plan could also increase your bill if you continue to consume the majority of your energy during peak hours.

Are Time-of-Use Rates Mandatory?

California was one of the first states to make TOU rates mandatory, beginning to transition customers over in 2019. While TOU rates are still optional in most states, more utilities may begin requiring TOU rates to support the clean energy transition, balance supply and demand, and build grid resilience. 

Maximize Your TOU savings with OpenSolar’s Advanced Features

We’ve partnered with OpenSolar, the world’s leading solar design and sales platform, to further optimize your time-of-use savings with Savant's Smart Budgeting tool.

To help your customers maximize the benefits of TOU rates, it's crucial to have a detailed understanding of their energy consumption patterns. OpenSolar offers a powerful feature that allows you to upload interval data directly into your system. This enables precise monitoring of energy usage at different times of the day, helping to identify peak and off-peak periods with greater accuracy. By leveraging this data, you can provide your clients with informed recommendations on when to use or store energy, further optimizing their TOU savings.

Additionally, OpenSolar’s platform is free of charge and provides an array of tools designed to simplify the solar adoption process and enhance energy management. Discover how OpenSolar can help you take full advantage of TOU rates and achieve significant savings on energy bills for your clients. Create your free account today and seamlessly integrate the Savant products you love into your OpenSolar projects.

By combining Savant with OpenSolar's advanced features, you can offer your customers unparalleled efficiency and savings, making your solar installations more attractive and valuable. Discover how OpenSolar can help you take full advantage of TOU rates and achieve significant savings on your energy bills, by creating your free OpenSolar account. Don’t worry, you can design with the Savant products you love within your OpenSolar projects.