What Does Time-of-Use Rate Structure Mean for Solar Contractors?

Industry Issues

Time-of-use rate structure impact the solar industry now and in the future. Some key issues seem to be how TOU policy changes in a given state would affect the sales process and proposal generation, the impact on customer savings and if and how software and other tech should address it.

Below is a compilation of excerpts from our interviews with solar company owners as well as a roundup of some recent articles about TOU. While the articles are by no means exhaustive we think they point to some interesting issues related to what the interviews discussed.

INTERVIEWS

Future/Markets

Three owners we spoke with – from HA, CA and AZ – all agreed that TOU is the future of solar in America. The CA owner was at a conference for TOU and energy storage when I interviewed him and he told me that this was a big issue – and that CA would be one of the first to make the switch. The HA owner told me that for areas with net-metering (unlike HA which lost it in 2015) TOU is not relevant but that San Diego, AZ, HA were all moving to TOU. He estimated that the market for customers needing to address TOU when installing a solar system would soon include all of HA, southern CA and parts of northern CA and that by late 2017 these areas would be huge markets. However, another owner in WA state felt that, while TOU would be relevant in the future, it wasn’t currently important in his state.

Sales Process/Software

While the AZ contractor completely concurred with the sentiment that TOU is the future he felt that having it be a part of the conversation with customers was premature. At the moment he felt it meant having too many items to fill out (i.e. when do you use the most electricity, how do you use it, how can you adjust it, etc.) and that customers would be reluctant to provide that info unless they were genuinely interested. He thought that in 4-5 years customers would be more open to it, as the need to look at would be more pressing. He did feel that the current situation in HA was different than AZ due to differences around energy costs and politics – noting that  everything is more expensive there compared to AZ.

Another CA owner agreed with the owner above, saying that, while he used Energy Tool Base to do proposal calculations, he felt that asking detailed questions in an effort to have the consumer adjust usage was “going into the weeds with a customer.” He felt it was too complicated for most because it depended too much on the person’s follow, making the results too haphazard. He said doing proposals this way was marketing to 1% of the market.

In contrast, the CA contractor at the conference (above) felt that it would be helpful to have software where the salesperson could enter info regarding rates and time of day for a customer (plus other considerations like battery usage and rebates) during the sales process.

The HA installer felt adamant that the HA consumer needed to understand their home usage because it would be more beneficial to them – as well as to consumers in areas like San Diego and AZ that were moving to TOU. He felt that TOU was a vital part of accurately quoting systems and to show relevant ROI. He thought the ideal software would include a series of questions that asked about usage, i.e. Do you work from home and when? What time do you  leave the house? When do you run laundry? That data (which would also account for when the system pulled from battery backup) could be viewed by the customer and salesperson to discuss how to optimize ROI and run calculations if the customer made shifts in usage times, updating ROI each time. The software could then model a system to meet that calculation. He did say that you’d have to put on a clamp to measure usage – that the hard data would be the only way of modeling the system accurately for the proposal.

ARTICLES

With Net Metering Secure, California Solar Now Faces Uncertainty From Time-of-Use Changes

By Jeff St. John

This Feb 2017 article talks about the impact on net metered solar of California’s big three utilities filing rate cases to shift on-peak hours to much later in the day. The article discusses the effect on residential and commercial solar like a 9-22% reduction in bill saving for commercial customers that, despite grandfathering clauses,  will have companies and schools losing “20 percent to 40 percent of the value of the energy produced.” The article does talk about some positives like the role battery storage can play.

Also interesting are the comments at the bottom that go back and forth about the repercussions of this and related issues. One commentator states, “This is going to be brutal for residential solar. Don’t let anyone tell you that this change is even remotely good for any residential solar developer…If you signed a lease / PPA through a third party ownership platform, and your agreement does not end in the next few years, you are surely going to be upside down on your deal.” Another declares, “I think it time to start thinking on demand control and the ability to fit the demand to the cost of the energy. Instead of relying on the ability of the customer to understand and response to the changing rates give the control demand system to change the demand automatically.”

Time-of-Use Means It’s Time for Storage

By Seth Mullendore

This article discusses the repercussions of a HA TOU pilot program that has the lowest electricity rates set for during the day. This of course means drastically lower energy savings for residential solar customers without storage for that energy generated during the day. The author asserts that this policy is a good indicator for where other leading solar states may be headed. He also states that while utilities seem to be trying to motivate customers to use more electricity during the day, HA customers will increasingly be looking to purchase storage and solar systems. He also discusses similar changes on the horizon in southern CA. Energy storage has come up quite a bit in my conversations with owners and I am interested to see how TOU will impact the relatively small battery market in the future.

How Time of Use Rates Work

This blog post from solar software provider Aurora is aimed at educating the consumer about how TOU can impact their bill. It defines TOU and declares that given that solar industry trends in CA tend to herald changes in other states, it is a good idea for consumers to understand TOU. The article describes how this rate structure is available in many states on a  voluntary basis and that utilities are increasingly considering applying it. The article also offers consumers a formula to use to “calculate how much of an impact the difference between high-cost electricity and low-cost electricity has on a homeowner’s bill.”

What Exactly is Time of Use?

On its website Sunrun positions it’s BrightBox battery as the way to avoid having to adjust your electricity usage to cheaper times if you are in a TOU state. It defines TOU for the consumer and then states, “there’s an easier way. Enter BrightBox, your very own home backup energy management system. With BrightBox you can avoid the most expensive rates under a TOU rate structure.” This relates to some of the comments made in our interviews above about how consumers might prefer as easier alternative to tracking and adjusting their usage.

California Takes Significant Step Toward Getting Time-of-Use Rates Right

By Brandon Smithwood

This SEIA article assesses the recent California Public Utilities Commission decision to adopt guidelines for establishing TOU rates, which includes many of the pieces proposed by the SEIA. The decision results in higher TOU rates in the afternoon when demand is highest and opportunities for solar is high. Given the changes in CA utilities regarding TOU the article argues that this PUC decision will protect existing solar consumers and give new customer five years between changes in TOU periods. The article also describes another positive as “the Commission decision also adopted SEIA’s proposal to establish TOU periods using all of the relevant costs of delivering electricity: generation, transmission and distribution. The article also points to some problems with potential confusion and certain vagueness in the decision regarding timing and the actual rates themselves.

The article notes that most consumers in CA and the rest of the country understand “simple TOU rate structures and can respond – by e.g. waiting to run the dishwasher until the off-peak period – in ways the benefit the grid.” From what we’ve been hearing, this last point may be right about understanding how the structures work but won’t necessarily translate into consumer action.

Utility Rate Structure

This other SEIA article talks about the need for utility revenue policies designed to help utilities work with their customers to encourage conservation and solutions like solar and send  price signals that closely reflect real time grid supply and demand. Excerpt from the article:

“Under most conditions, utilities face very different costs for generating electricity at different times. However, in most places utility customers pay the same price for electricity regardless of when it’s purchased. These markets are divorced from the basic principles of supply and demand. As a result, homeowners and businesses have no particular incentive to minimize their use of grid-supplied electricity during peak demand hours. If consumers received price signals that more accurately reflected the supply and demand of electricity, they might choose to conserve energy or generate their own. As the demand for peak energy grows, utilities are forced to build costly generation assets that sit idle during non-peak demand hours. These generation assets impose unnecessary costs on ratepayers.”

Curious about my company’s project management app built for solar contractors? It allows the field and the office to communicate, schedule, swap docs and track milestones. Just shoot me an email for a demo.

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