What is Time-of-Use Pricing?
Time-of-use (TOU) rates charge different prices for electricity based on when you use it. Electricity costs more during "peak" hours when demand is highest (usually late afternoon/evening) and less during "off-peak" hours (typically overnight and mid-day).
This pricing structure reflects the reality of the electric grid: when everyone turns on their AC after work, utilities must fire up expensive "peaker" plants. They pass those costs to customers through TOU rates.
Typical TOU Structure
| Period | Typical Hours | Relative Price | What's Happening |
|---|---|---|---|
| Peak | 4 PM - 9 PM | Highest ($$$) | Everyone home, AC running, cooking |
| Partial Peak | 2 PM - 4 PM, 9 PM - 11 PM | Medium ($$) | Transition periods |
| Off-Peak | 11 PM - 6 AM | Lowest ($) | Low demand, everyone sleeping |
| Super Off-Peak | 10 AM - 2 PM (some utilities) | Lowest ($) | Solar flooding the grid |
How Solar Helps with TOU Rates
Direct Production During Peaks
Solar panels produce power during daylight hours, which typically overlap with at least part of peak pricing periods. Even though peak hours have shifted later in many markets, solar still provides value by:
- Covering afternoon demand: AC usage often starts before official peak hours
- Reducing grid purchases: Every kWh you produce is one you don't buy at peak rates
- Exporting during partial-peak: Excess production still earns credits (though often at lower rates)
The Challenge: Peak After Sunset
The main complication with TOU rates and solar: peak pricing (4-9 PM) happens when solar production is declining or ended. Without a battery, you're buying expensive peak power even with a solar system.
| Hour | Solar Production | Typical TOU Rate | Strategy |
|---|---|---|---|
| 12 PM | 100% | Off-peak | Export or store excess |
| 4 PM | 60-70% | Peak starts | Use/store production |
| 6 PM | 20-30% | Peak | Use battery if available |
| 8 PM | 0% | Peak | Battery or buy from grid |
Understanding Peak vs Off-Peak Value
Real-World TOU Rate Examples
| Utility | Peak Rate | Off-Peak Rate | Spread |
|---|---|---|---|
| SCE (CA) TOU-D-Prime | $0.55/kWh | $0.25/kWh | $0.30 |
| PG&E (CA) EV2-A | $0.50/kWh | $0.28/kWh | $0.22 |
| SDG&E (CA) TOU-DR | $0.62/kWh | $0.32/kWh | $0.30 |
| ComEd (IL) | $0.18/kWh | $0.12/kWh | $0.06 |
| PSEG (NJ) | $0.19/kWh | $0.14/kWh | $0.05 |
Key insight: California utilities have the most aggressive TOU spreads, making batteries and strategic design more valuable there. In markets with small spreads (under $0.10), standard solar-only systems work fine.
Battery Arbitrage Strategy
Battery arbitrage means storing cheap (or free) energy and using it during expensive peak hours. With solar + battery on TOU rates, here's how it works:
Daily Arbitrage Cycle
- Morning (6 AM - 10 AM): Low demand, solar ramping up. Use solar + grid if needed.
- Mid-day (10 AM - 4 PM): Peak solar production, often super off-peak rates. Charge battery with excess solar.
- Late afternoon (4 PM - sunset): Peak rates start. Use remaining solar production directly.
- Evening (sunset - 9 PM): Peak rates, no solar. Discharge battery to avoid grid purchases.
- Night (9 PM+): Off-peak rates return. Buy grid power if needed; optionally charge battery from grid.
Arbitrage Economics
For battery arbitrage to make financial sense, the spread between peak and off-peak (or value of stored solar vs. export credit) must offset the round-trip efficiency loss (typically 10-15%) and battery degradation.
| TOU Spread | Daily Battery Cycles | Annual Arbitrage Value | Verdict |
|---|---|---|---|
| $0.30+/kWh | 1 full (13 kWh) | $1,200-1,500 | Excellent |
| $0.15-0.29/kWh | 1 full | $600-1,100 | Good |
| $0.05-0.14/kWh | 1 full | $200-550 | Marginal |
| Under $0.05/kWh | 1 full | Under $200 | Not worth it |
West-Facing Panels for Afternoon Peaks
Traditional solar wisdom says "south-facing is best." But with TOU rates shifting peak hours to late afternoon, west-facing panels have a strategic advantage:
South vs West Orientation Comparison
| Factor | South-Facing | West-Facing |
|---|---|---|
| Total annual production | 100% (baseline) | 85-90% |
| Peak production time | 11 AM - 1 PM | 3 PM - 6 PM |
| Overlap with peak rates | Low (rates shift after) | High (catches 4-6 PM) |
| Value per kWh on TOU | Lower (off-peak production) | Higher (peak-aligned) |
When to Consider West-Facing
- Aggressive TOU rates: $0.20+ peak/off-peak spread
- No battery: Can't store mid-day production for later
- South roof isn't available: West is often the next best option anyway
- NEM 3.0 or poor export rates: Self-consumption during peak is most valuable
TOU Optimization Tips
Without a Battery
- Shift loads to mid-day: Run dishwasher, laundry, pool pump during off-peak/solar production hours
- Pre-cool your home: Blast AC before peak hours, then set higher during expensive periods
- Charge EVs overnight: Most TOU plans have super-low overnight rates for EV charging
- Use timers: Automate high-energy appliances to run during cheap hours
With a Battery
- Prioritize peak discharge: Set battery to discharge during highest-rate hours first
- Reserve for backup if needed: Keep 20-30% capacity if outage protection matters to you
- Consider grid charging: Some TOU plans have super off-peak rates where charging from grid (not just solar) makes sense
- Smart home integration: Let your battery system communicate with smart thermostat, EV charger, etc.
Rate Plan Selection
Many utilities offer multiple TOU options. Compare them carefully:
- EV-specific plans: Often have very low overnight rates but higher daytime costs
- Solar-optimized plans: May offer better export rates or longer off-peak windows
- Tiered TOU: Combines usage tiers with time periods—can be complex but valuable
- Demand charges: Some TOU plans add demand charges (peak kW)—avoid if possible
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