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How Time-of-Use Pricing Can Unlock Customer Value

June 17, 2015 By Josh Kessler

The California Public Utilities Commission (CPUC) has proposed two plans that would direct the state’s three investor-owned utilities to institute more widespread use of time-of-use (TOU) pricing mechanisms, according to the Environmental Defense Fund’s Energy Exchange blog. TOU pricing through utilities or retail providers can be beneficial to customers who install distributed generation (DG) or energy storage, as well as those that can shift consumption to off-peak hours.

As a previous Energy Exchange blog post on time-variant pricing explains, when the grid experiences periods of higher demand, it generally has to rely on supplies from less efficient power plants. These plants consume more fuel and in turn cost more and have higher emissions per kWh of generation. TOU plans and other time-variant pricing schemes aim to address this issue. Below is a discussion of how TOU pricing promotes DG, energy storage, and load shifting – as well as an explanation of the differences between the two California pricing proposals.

Distributed Solar

Peak demand generally takes place during the day, which is when solar photovoltaic systems generate electricity. Because a kWh of electricity supplied during the day is worth more to the grid than a kWh supplied at night, the average kWh of solar produced tends to have an above average value. In order to capture that value, distributed solar owners need to be on TOU pricing plans.

Energy Storage

Energy storage systems benefit dramatically from TOU pricing, whether they are standalone or tied to distributed solar generators. Advanced battery technologies, such Tesla’s new Powerpack and Powerwall products, are beginning to enter the mainstream. In order to gain the greatest benefit from these technologies, customers need to be able to charge their systems (i.e. buy energy) during off-peak hours when energy is cheap and discharge (sell energy) when energy is most expensive. Customers who implement these systems will want to be on this type of plan to ensure they can benefit from TOU price differentials.

Load Shifting

Customers can shift consumption from peak hours to off-peak hours. For example, manufacturers that run multiple shifts may plan to engage in more energy-intensive activities during night shifts versus day shifts. TOU pricing allows customers to benefit from this kind of behavior.

California’s Two Proposals

According to EDF’s blog post, California is currently considering two proposed orders to establish TOU pricing as the norm for all customers in the state – an original proposal and an alternate proposal. The post details three primary differences between the proposals.

Point of Difference Original Proposal Alternate Proposal
Certainty of requirement Utility customers will default to TOU pricing by 2019 Utilities must establish a goal of defaulting customers to TOU
Number of price tiers Two tiers, where the upper tier has TOU rates Three tiers, with a far more complex price structure that complicates customer planning efforts
Mechanism to ensure that each customer pays Fixed charge – same for all customers Minimum bill – requires all customers to pay the same amount

 

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