What if electricity cost more when the sun was shining?
Many utilities are using new electronic “smart meters” to adjust the price of electricity as often as every 15 minutes, to reflect supply and demand. And charging more when electricity is in short supply can be good news, making investments in distributed solar power pay off faster.
Time-of-use (TOU) pricing is a different billing method for electricity, where the customer pays based on the time of day of using electricity rather than a flat rate per kilowatt-hour consumed. The premise is that electricity is more expensive when in high demand (e.g. by air conditioners in the afternoon on hot, sunny days) and that pricing accordingly will help reduce demand.
For example, customers in San Francisco on a TOU pricing plan pay more for electricity during peak hours (12 PM to 6 PM). In the cold months (November through April), the peak rate is 11.1 cents per kilowatt-hour (kWh), compared to 8.3 cents during non-peak hours. But in the warm months (May through October), electricity used from 12 PM to 6 PM costs 31 cents per kilowatt-hour (kWh), while off-peak electricity is 7.9 cents per kWh.
This pricing scheme can act as an incentive to go solar, because solar panels tend to operate at their highest capacity during summer months. The following chart shows the solar radiation falling on San Francisco during the “winter” and “summer” seasons (as defined by the utility). The average insolation during the summer is 6.42 kWh per sq. meter per day, compared to 4.46 in the non-peak season.
Solar panels also tend to have higher output during the peak hours of the day. In fact, the California Public Utilities Commission found that solar tends to have a 60% capacity factor (produce 60% of its maximum) during peak electricity periods. The following chart from SolarStik illustrates:
The Economics of Time-of-Use Pricing for Solar
So what will a time-of-use pricing plan mean for the economics of solar in San Francisco? It means solar customers save more money.
Just over a quarter of a solar panel’s output comes at the summer peak period, when the value of electricity is over 30 cents per kWh. A further 18% happens during the winter peak, when prices are a third higher (at 11 cents) than off-peak rates).
On average, year-round, the cost of grid electricity on a TOU plan is 14.6 cents during the daylight hours a rooftop solar array is producing, 80% higher than the 8.3 cents customers pay in the off-peak period and 14% more than customers pay on a flat rate plan.
Time-of-use electricity pricing may not be a panacea, but it’s a good policy for helping finance distributed solar.
Note: For the levelized cost of solar in San Francisco, we used an installed cost of $4.40 per Watt, 80% financed over 10 years, with a 25-year project life.
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