Understanding Time of Use Rates: How Time-of-use Rate Plans and Pricing Impact Your Electricity Bill and Savings Potential

Time-of-Use (TOU) rates are an innovative electricity billing arrangement where the price you pay for power fluctuates based on the time of day. Unlike flat rates, which charge a uniform price per kilowatt-hour (kWh) no matter when you use electricity, TOU rates reflect changes in energy demand throughout the day, encouraging consumers to shift their energy usage to lower-demand, off-peak hours.

TOU plans are becoming increasingly common, particularly in states like California, where solar power is widespread, and electricity providers are required to offer this billing method. While TOU rates might sound complicated, they can offer significant savings for homeowners who adjust their electricity usage habits accordingly. Let’s dive into how TOU rates work, the benefits and challenges they present, and how you can use them to lower your energy bills.

Key Takeaways

What Are Time of Use Rates?

TOU rates vary based on the time of day, with prices generally lower during off-peak hours (when demand is lower) and higher during peak hours (when demand is at its highest). For example, electricity is usually cheapest at night and during midday, but prices spike in the late afternoon and evening, typically between 4:00 PM and 9:00 PM on weekdays. This schedule aligns with the natural rhythms of electricity demand—lower when people are asleep or out of the house and higher when they return home from work and school.

Utilities offer TOU rates to incentivize consumers to shift their energy usage away from peak periods, thereby reducing strain on the grid and saving money on electricity generation costs during times of high demand.

Why Utilities Use Time Of Use Rates

Utility companies benefit from TOU rates because they help balance the load on the electricity grid. Producing electricity during peak times is significantly more expensive than during off-peak hours due to the need for utilities to ramp up additional power plants or buy electricity on short notice. By encouraging consumers to reduce their usage during peak times, utilities can lower operational costs and reduce the need for expensive peak-time energy production.

The Differences Between Time Of Use Pricing and Standard Rates

Under standard flat-rate plans, electricity is charged at a constant price per kWh, regardless of when it is used. However, TOU plans introduce variable pricing that fluctuates depending on the time of day, with different rates for peak, off-peak, and super off-peak periods.

For instance, let’s look at an example from Southern California Edison (SCE). Their TOU rates shift between seasons and even differ on weekends and holidays when demand patterns change. In the winter, nighttime electricity is often more expensive than during the day due to increased heating needs. The ability to tailor electricity use around these shifting price periods is what makes TOU rates appealing to those who can plan accordingly.

Is Time Of Use Billing Worth It?

Whether TOU billing is worth it depends largely on your ability to adjust your electricity usage habits. If you can shift a significant portion of your electricity consumption to off-peak hours, TOU rates may allow you to reduce your overall electricity costs. For example, running high-energy appliances like dishwashers, dryers, and washing machines at night instead of in the evening could result in noticeable savings.

In a comparison of rates from San Diego Gas & Electric (SDGE), their 2023 TOU rates are structured as follows:

Compared to a flat rate of around $0.45/kWh, strategically using electricity during the cheaper off-peak periods could result in lower monthly bills. However, if you find it difficult to shift your usage patterns, you might end up paying more than you would under a flat rate plan.

Do Solar Panels Make Time Of Use Rates Cheaper?

Solar panels can be a game-changer when paired with TOU rates. While solar systems typically generate electricity during the day when off-peak rates are in effect, homeowners can still benefit by storing excess solar energy in a home battery. This stored energy can then be used during peak periods, reducing reliance on expensive grid electricity. Additionally, homes with west-facing solar panels can capture more sunlight in the late afternoon, which can further reduce peak-time consumption.

Making the Most of Time Of Use Rates

The key to optimizing TOU rates is to understand your household’s energy consumption patterns and adjust accordingly. Simple changes, such as using appliances during off-peak hours, can result in meaningful savings over time. For those who are more invested in energy efficiency, adding solar panels and a home battery system can maximize savings and reduce your dependence on grid electricity altogether.

For example, using an energy monitor like Sense can provide insights into when and how you use electricity, making it easier to adjust your habits. Some utilities even offer special TOU rate plans for battery owners, providing even more opportunities for savings.

The DroneQuote Household Electricity Calculator is a valuable tool for homeowners looking to understand and optimize their electricity usage. By inputting basic household information, such as square footage, energy consumption habits, and appliance usage, the calculator provides an estimate of monthly electricity costs. This tool is particularly useful for those considering solar power, as it helps determine the number of solar panels needed to offset electricity consumption and maximize savings. Additionally, for households on Time-of-Use (TOU) rate plans, the calculator can offer insights into potential savings by shifting energy usage to off-peak times, making it easier to manage energy bills and reduce costs efficiently.

Final Thoughts: Is Time Of Use Right for You?

TOU rates offer a great opportunity to lower your electricity costs if you can adjust your energy usage to align with off-peak periods. Homeowners with solar panels or home battery systems are especially well-positioned to take advantage of TOU rates, but even without these technologies, simple changes in behavior can help reduce your bill. Ultimately, the key to success with TOU rates is understanding your consumption habits and making strategic adjustments to save money.

If you’re considering solar panels, now might be the time to invest. With electricity prices continuing to rise, the combination of solar power and TOU rates could lead to substantial long-term savings.