Time of Use Rates Favor Solar PV

A recent study of load profiles, rate structures and solar insolation for the three major California utilities underscores the beneficial match of PV generation and load demand. 

Time of Use rates can stimulate faster adoption of PV systems that will offset peak demand. 

Leveraging Time of Use rates, solar PV customers can benefit from higher economic returns and faster payback on their solar PV systems. The impact can be dramatic. Payback for PV system purchases can be reduced by 40% or more for California residents who select Time of Use pricing.

Time of Use Rates

Facilitated by smart meter adoption, Time of Use rates are being offered in many jurisdictions. In some cases like that in San Diego, there are even special Time of Use rates specifically for PV installations.

Where smart meters are deployed, Time of Use (TOU) rate structures soon follow. Time of Use pricing can have a positive impact on the economic returns for a PV System. Peak demand, and peak pricing, is highly coincident with solar PV system output.

A key utility benefit of TOU rates is matching the costs of electricity generation and transmission with its usage. TOU rates also provide the ratepayer (aka the utility ‘customer’) with an economic incentive to moderate electricity consumption during the peak demand periods.

Satisfying peak demand is expensive

Satisfying peak demand – especially during hot summer months – has long been a vexing challenge for utilities. Electrical systems must be designed for the peak requirements all the way from generation sources through to the extensive transmission and distribution infrastructure. When it comes to predicting load demands, weather plays a critical role. Hot summer afternoons drive demand for air conditioning which, in turn, drives the peak.

Hot weather, however, also reduces generation efficiency, lowers hydro reservoirs and reduces grid transmission capacity.

Just when we need more electricity, it is harder and more expensive to generate and transmit.

TOU rates allow utilities to charge for higher cost energy when that energy is being used, and to charge less when it is easier and less expensive to supply. 

The peak problem is increasing

In California, peak requirements are increasing faster than overall electricity demand. Load factors (average demand compared to peak demand) are declining as a result. More and more infrastructure is required to satisfy less and less baseload demand.

Today’s generation and transmission mix will not satisfy tomorrow’s demand needs. Proportionally more peaking infrastructure is required.

The most recent version of the ten year California Energy Demand Forecast, for example, illustrates that load factors are expected to decline from 2010 through 2020. Declining load factor is driven primarily by air conditioning requirements, but is also heightened, surprisingly, by energy efficiency solutions.

The general decline in the load factor over the last 20 years indicates a greater proportion of homes and businesses with central air conditioning. This trend is projected to continue over the forecast period. Energy efficiency measures, such as more efficient lighting, can also contribute to the declining load factor by reducing overall energy use while having an insignificant effect on peak demand.

A 2010 University of California Berkeley study revealed that in spite of increased energy efficiency building standards, new buildings consume more electricity than older buildings. “As new buildings are added, aggregate temperature response (more electricity demand) is predicted to increase.”

Peak demand from Residential consumers in California is growing faster than any other sector.

Solar provides a win-win 

Where peak power supply challenges other generation sources, however, it is a bonus for solar PV generation and a benefit for the utilities. If the PV system is located close to the peak load demand, PV generation also reduces the strains of peak demands on the transmission and distribution grid.

Can Renewables Standards help?

California’s Renewables Portfolios Standard (RPS) is about to increase from 20% to 33%. Residential installations already represent almost half the California PV market. Southern California Edison (SCE) leads the other major investor owned utilities, with 19.4% of its 2010 retail electricity sales from renewable power.

Given the escalating peak demand from the Residential sector, it is instructive to model what impact 10% PV-based generation would have on Residential load profiles.

The most recent California Energy Demand Forecast already includes as much as 810 MW of PV generation against peak demand by 2020. Peak demand, however, is far in excess of this amount of PV generation.

If SCE, for example, were to prioritize PV for 10% of its RPS requirements, the effective peak requirements could be reduced by more than 30% for Residential customers alone.

Putting PV systems on rooftops can result in a major impact on the system needs to provide and manage peak electricity demand.