What the Latest Utility Rate Changes Mean for Commercial Solar and Energy Storage in California
Updated: Jul 29
As a sales engineer with Extensible Energy, I spend a lot of time analyzing commercial solar projects around the U.S. and tracking current utility rates in different parts of the country.
California’s electricity rates are undergoing change to help ease the state’s transition to clean energy by shifting energy consumption to match up with the timing of generation from solar and other renewables, and by rewarding distributed clean energy projects.
The main changes for commercial solar and energy storage customers are with TOU rates and demand charges. Before we get into the changes, let’s define these terms:
What are TOU rates?
With TOU energy rates, utilities charge a higher price per kilowatt-hour (kWh) when businesses use electricity during a certain time of day or year, usually when system demand is highest or generation is most carbon intensive. The peak period in California – when the cost of electricity is at a premium – now falls between 4:00 PM and 9:00 PM, particularly on summer weekdays. Try not to blast your AC, dryers, or other equipment at this time, alright?
What are demand charges?
The other primary component of the electricity bill for non-residential California customers is the demand charge. This charge is based on the peak power that your business draws from the grid and is measured in kilowatts (kW). California utilities measure your usage at 15-minute intervals, referred to as “interval data.” At the end of the billing cycle, utilities will take the 15-minute interval period with the highest average kW and multiply that number by the demand charge rate, which can change every season.
So, let’s say you’re in San Diego and your building’s peak demand was 100 kW during an on- peak TOU period after you turned up the HVAC on a hot summer day. Even if you never spiked up to 100 kW again during the entire month, SDG&E will charge 100 x their combined AL-TOU summer demand charge of $56.48 per KW, so you’ll have an additional $5,648 added to your bill.
California's best TOU and demand charge rate options for solar and storage
California’s largest utilities — San Diego Gas and Electric (SDG&E), Southern California Edison (SCE), and Pacific Gas and Electric (PG&E) — have begun to offer new rate options that improve the value of behind-the-meter (BTM) solar installed with or without energy storage.
These new solar and storage rate options generally shift the cost of electricity away from demand charges and toward significantly increased TOU energy charges.
For all California utilities, the on-peak time period is now 4pm — 9pm. There’s good news and bad news in the new rate structures. It is now possible to choose rates that are much more favorable to some types of solar projects, but those choices require careful analysis.
In my analysis of commercial solar projects, I’ve observed that solar alone can often save more with the new TOU rate compared to the old rates. However, maximizing monthly bill savings requires an intentional shift of loads away from the peak times of day to mid or off-peak periods.
In general, the rate options below always provide the least costly electricity bills for commercial building customers with solar alone or solar plus storage.
For SDG&E, the best commercial solar/storage rate option is DG-R
For SCE GS-2, GS-3, and TOU-8, Option E is the best choice
For PG&E, it’s B-10, or B-19 option R or S
The graph below shows the difference in demand and TOU energy costs between SDG&E’s AL-TOU rate and DG-R rate during the summer season. The pattern of reduced demand cost and increased peak energy is shared across the utilities.
Using TOU energy pricing, the California Public Utilities commission is signaling how solar project developers and customers can enable distributed solar energy resources to produce more clean power during the times of peak system demand. So what does this mean for solar installers and their customers?
Three Take-Aways for Solar Installers
1) Design systems with Westward orientation in addition to Southern. In order for solar installers to take full advantage of these TOU rates that favor evening on-peak generation in the summers, design PV systems with at least some Westward-facing panels. While you may lose some overall production, Westward orientations will save clients more at critical hours.
2) Program energy storage for the right TOU. The new designs mean that energy storage systems can maximize savings by charging the batteries with solar during off-peak periods and discharging during the on-peak window. A win-win for utilities and businesses.
3) Add load flexibility software. While batteries can take advantage of these new rates, they can be expensive. The alternative is for installers to add software that shifts flexible loads to more favorable TOU periods and that takes advantage of the building’s heating and cooling times.
The timing of shifting flexible loads and optimizing heating and cooling is where Extensible Energy’s DemandEx software comes in. In the age of inexpensive smart thermostats, building control hardware, and ubiquitous digital communications, it’s simpler than ever for software to intelligently and automatically control flexible HVAC loads in a building, saving building managers time and money.
DemandEx’s algorithms analyze weather data, solar production, and the buildings’ energy usage patterns to optimize flexible loads for off-peak usage and take advantage of the buildings’ thermal storage to minimize electricity bills. No storage required unless the business needs backup power.
Best of all, no matter how your utilities are designing rates today, Extensible Energy designs DemandEx to optimize based on the customer’s current electricity rate, ensuring that building owners continue to save the most on TOU and demand charges. Whether you’re in California or any state with complicated demand and TOU charges, contact Extensible Energy for a free utility rate analysis and learn how we can help maximize utility savings.
Jackson Herron is a Sales Engineer at Extensible Energy.