Solar and time-of-use electricity rates: what you need to know

solar panels tou net metering 2.0 california

California’s new net metering policy, commonly referred to as net metering (NEM) 2.0, brought some big changes to the Golden State’s solar market in 2017. NEM 2.0 is now active for customers of all three investor-owned utilities in California: Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison.

The biggest change for California solar homeowners is that everyone who installs a solar system from now on will have to switch to time-of-use (TOU) electricity rates. NEM 2.0 also adds some “non-bypassable charges” that solar system owners under the original net metering program didn’t have to pay.

Electric utility customers who switch to time-of-use rates pay different rates for their electricity throughout the day. Many utilities offer optional time-of-use rates for solar system owners and owners of electric vehicles. For anybody considering installing solar under a time-of-use rate, including California homeowners and business owners, there are two main questions to be answered: how should your solar system design change, and how will your long-term savings be impacted by a TOU rate?

What makes solar time-of-use rates different

Before California implemented TOU rates for solar system owners, net metering was a very simple calculation: every net metering credit was worth the cost of one kilowatt-hour (kWh) of energy from the utility, which was fixed.

In a TOU rate structure, the cost of electricity varies throughout the day based on electricity demand. The highest electricity prices come in the afternoon and evening, when air conditioners are running at top speed and customers are returning home from work.

PG&E TOU-B schedule summer

Example of a summer time-of-use rate from PG&E.

PG&E TOU pricing B winter

Example of a winter time-of-use rate from PG&E.

Solar system owners on TOU rates still receive a credit worth the cost of one kWh for every kWh they generate. However, because the rate changes throughout the day, the value of net metering credits is also variable. One kWh of solar electricity sent back to the grid at 10 am, during “off peak” hours, will be worth less than a kWh sent back to the grid in the afternoon and evening “peak” hours. As a result, there are some changes to system design that solar homeowners on TOU rates should consider.

Solar system design for TOU rates 

Aurora Solar, a company that develops solar system design software for solar installers, conducted a study to determine the financial impact of California’s new net metering policy. The company examined the effects the new policy to identify the best design for California solar shoppers.

If you participate in net metering without TOU rates, solar panel systems that face south are the best option to maximize your electricity production. However, if you install solar under a TOU rate with a late afternoon “peak,” you may want to install solar panels that face west to improve your afternoon electricity production. Remember – electricity in the late afternoon and evening is more expensive, which means that your net metering credits in those hours will be more valuable.

That being said, solar panel systems that face west will have higher production during peak hours, but they will also have lower overall production over the course of a day. You may need to build a slightly bigger solar panel system – approximately 10 percent larger than you would have under the previous net metering policy – to account for that. 

How do solar savings change under time of use rates? 

Now for the biggest question for many solar-interested Californians in 2017: will net metering 2.0 result in lower solar savings for your home?

Aurora Solar’s analysis found that, all other things being equal, switching from the previous net metering policy to net metering 2.0 will reduce average utility bill savings by about 3.5 percent. In the scenario that they analyzed, the expected utility bill savings dropped from 89.5 percent to 86 percent, and payback period increased by about four months, but remains under seven years.

In short: while solar savings are slightly lower under net metering 2.0, system design improvements can minimize the impact of the changes. Installing solar panels in California is still one of the best investments that homeowners can make in 2017.

Work with a qualified installer to maximize your solar electricity production

If you want to install a solar panel system in California, knowing where to start can be a complicated question. Choosing a qualified installer is one of the most important decisions you can make during the solar shopping process, particularly under NEM 2.0. The EnergySage Solar Marketplace makes it easy for you to compare quotes from pre-vetted solar installers near you. Homeowners who go solar through the Solar Marketplace typically save 10 percent or more on their installation simply by comparing all of their options.





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