What Are Time of Use Rates? A Guide to the Cost of Electricity

An increasing number of utility companies throughout the country have begun to offer residential consumers a structured billing program called Time of Use (TOU) rates. TOU rates are designed to incentivize energy-conscious consumers to use more electricity during “low demand” hours when electricity is less expensive to produce. 

In most geographical areas, TOU rates are optional, but homeowners in California who install solar panels are asked to agree to a TOU billing arrangement. California was among the first states to implement mandatory TOU rate structuring, but more and more other states are following suit. Starting in the spring of 2022, Colorado’s largest utility provider began transitioning customers to seasonal TOU rates

This post will demystify TOU billing structures and explain their benefits. Keep reading for more information on the following:

  • What are Time of Use (TOU) rates?
  • How a home battery can reduce peak energy costs 
  • The long-term savings of a battery with solar panels 

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What Are Time of Use (TOU) Rates?

A graph comparing PG&E’s time of use rates for winter versus summer.

TOU rates provide utility companies with a way to bill energy consumers based on the time when the energy is produced.

It costs more to produce electricity when energy usage is high. When demand drops, so does the cost of production. This approach allows savvy homeowners to save significantly on utility costs by planning their peak energy usage around times when electricity is typically in low demand and, therefore, less expensive to produce. 

How TOU Rates Affect Your Electricity Bill

TOU rates vary per location and utility company, but they generally involve “peak” and “off-peak” hours. 

Peak hours are typically defined as blocks of time. For instance, weekend afternoons are a common peak hour designation because many people reserve major household chores such as laundry and vacuuming for this period of time. Household usage of personal electronics is also higher in most homes during the weekend, and because more people tend to be home at this time, heating and cooling systems are typically working at full strength. 

All hours that have not been designated as peak hours fall into the off-peak category. Homeowners can help keep their electric bills down by doing laundry during off-peak hours, waiting until right before bed to start the automatic dishwasher, using programmable thermostats, and using smart appliances. 

Choosing Your TOU Plan

Naturally, you will want to choose the TOU plan that best suits the needs of you and other household members. After all, if you’re like most people, you stick to a fairly conventional schedule and don’t want to stay up until the early morning hours doing laundry and vacuuming just to shave a few dollars off your utility bill. 

Although most households can save on energy costs by making a few simple adjustments to their daily schedules, the ones who benefit most from TOU plans are those with solar panels installed. 

How a Home Battery Can Reduce Peak Energy Costs

An orange graph explaining the value of energy with and without a battery.

Homeowners with solar PV systems can reduce their energy costs even further by installing a home battery to store the solar energy they don’t use. This greatly decreases or even eliminates the need for homeowners to draw from the energy grid during periods of high energy consumption.

Even if your household’s energy needs are more than what your home PV and home battery system can supply, you can still strategically schedule your utility usage so that you’re only drawing from the grid when rates are at their lowest. 

As a bonus, having a home battery protects you from power outages. It will also lower your overall carbon footprint.

The Long-Term Savings of a Battery with Solar Panels

The long-term savings you’ll gain by using a home battery with your solar PV system depends on factors like how well you coordinate the times you draw from the battery with the times you draw from the local power grid and your household’s overall energy needs. Other factors include your solar PV system’s efficiency, whether it’s installed correctly, how many hours of direct sunlight you get, and the number of panels you’ve had installed. 

However, it’s estimated that the average homeowner saves as much as $35,000 over 20 years or $100 per month. Our expert technicians at Photon Brothers can advise you further on the best ways to save on energy costs and the benefits of using top-quality solar products such as Tesla and REC.

Get a Free Solar Estimate from Photon Brothers Today!

Our solar experts are standing by, ready to provide upfront pricing on the best solar systems for your needs and budget. Call us at (720) 370-3344 (Colorado) or (805) 351-3371 (California) to schedule a free custom estimate. You can also book an appointment online, or click below to get a quote in just seconds! 

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