solar panels tou net metering 2.0 california

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

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 of 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.

12 thoughts on “Solar and time-of-use electricity rates: what you need to know

  1. John Aviles

    OMG, just read about NEM 3.0 proposals from California power companies and it’s a total screw over for owning solar panels. OK for existing solar panel users since they get grandfathered in. I’m borderline because I don’t know if I’ll get official final signoff before NEM 3.0 decision in Jan of 2022.

    No carry over credits on a monthly basis means power companies totally benefit. They basically get free power unless they pay you cash for those credits. If that’s the case, it’s not too bad.

    The other power company proposal that sucks is the high fixed costs for only solar customers. I understand as solar customer we use their infrastructure, but we both benefit. Power generation gets distributed and potentially would help drive down wholesale prices during peak solar power generation. It helps stabilize the grid so power solar user generate too.
    If power companies get their way and it’s not a compromise with solar users and solar companies, I will look to get completely off the grid when home battery prices come down.
    What’s the point of me having solar if I am barely saving any money and it takes me 15 years to break even?

    1. Joebro

      Hurry and get your solar installed now. I believe you have through the first quarter of 2022 until NEM 3.0 is implemented

  2. John Aviles

    Another thought about how Net Metering 2.0 is worse for solar users.

    As more people get solar panels, the supply of solar generated energy will increase. If it increases significantly over time, simple supply and demand means lower prices. There is possibility that businesses that produce electricity for wholesale market may offset that by not producing energy at those times because they can’t profit.

    Solution is storing the cheaper energy creation from solar in batteries. This can be done at utility and personal levels. The price is steep right now for getting home batteries thought IMO.
    I may consider it if peak electricity prices continue to rise or start becoming more than double non-peak prices (solar peak energy creation times). Definitely if home batteries drop to around 50% of what they cost currently and I would want LFP batteries.

  3. Vic Borgogno

    Consider a Solar system with a lot of surrounding trees, such that the system only get sun on the Solar modules during April thru Sept.
    The question: is there a best time for a person to have PGE turn on their system and start their PGE year?

    In other words, is there an optimum time in terms of TRUE UP?

    The thought experiment may be made easier by assuming that ALL your energy is obtained in a 1 month period, let’s say the month of June.
    This means that we put all of our energy onto the GRID in June and hopefully get to use it up during all the other non-producing months.

    Now, assume I turn ON my system on June 1 and my PGE year begins. During this 1 month I put all of my energy onto the GRID; then during the rest of my PGE year I can pull my energy back off the GRID and run my home off my stored Solar energy.
    If I have optimized the size of my array, then on average I will use up all the stored energy put onto the GRID before True Up.

    Now consider the alternative, I turn ON my system on July 1 and begin my PGE year. I have no stored Solar energy, so I run on PGE energy until June 1, when I begin generating and using Solar power, but putting all my extra power back onto the GRID for storage. That is until the end of June, when TRUE UP occurs and I’m paid back at, let’s say $0.05 per kWh. Of course, I can still get power from PGE, but at a much greater cost.

    To summarize, should one wait to turn ON your system, and begin your PGE year, just as your GRID starts being productive?

    In our shadowing example, should we have PGE come out in April, so that TRUE UP doesn’t zero out my extra unused energy?

    Appreciate any feedback that can clarify my understanding or misunderstanding.

    Thanks, vic

  4. maria nova

    so if you have solar panels does your air conditioning go into an energy conservation mode for peak hours automatically? Thats what seems to be happening to us. Our air changes to 85 degrees and its over 100 outside and its HOT in the house!

  5. Ryan

    Here in the Central Valley the impact is looking to be much more significant than stated here. During summer we have temps reaching 110 in the afternoon and stay over 100 through peak when edison is charging 43 cents per kwh. Earlier (until 4pm) when our solar is generating electricity we get credited only 21 cents per kwh.

    The result is during summer months, with a system sized 10% over our raw usage, because of the rate differences were actually still paying almost the same for our electricity as we did before solar, plus we have the solar payment. Yay, we actually ended up doubling our electricity costs. Screw you PUC.

    Maybe it will average out over the winter, but these TOU plans so far look like a very bad deal. If I had calculated the impact better up front I would have NEVER bought solar.

    1. JUAN C

      I totally agreed with you this is BS, but I really dont blame SCE I blame our our representatives they are the bigges idiots I dont know how and why would you let a multibillion company like SCE get their way all the time we the people are the ones getting screw all the time and our representavives our morelikely getting pay under the table and thats the reason they let it fly all the time is BS

    2. John Aviles

      TOU is much more worse for the customer. Though the 1:1 credit could in some instances could be less fair for power company. Adjustment should have been somewhere in the middle between 1.0 and 2.0. The new net metering deters adoption of solar.

      I just got solar and will see how it works out for us if we can lower AC use during peak times and crank AC during day. To compensate for summer, costs, we would have to do somewhere between double to triple kWh production in non-AC times to offset summer peak hour AC use.

      Seems like best solution though pricey may be to get home batteries which I did not get because it wasn’t worth it in my calculations originally. However, with LFP (Lithium Iron Phosphate), I may reconsider if prices are low enough. LFP don’t have the fire hazard with thermal runaway that Lithium Ion does. It also has longer life and can be charged to 100%. The downside is it has less energy density, but for home use or large scale utility that’s not a big issue.
      My thought it use all the excess energy to charge batteries, then use battery power during peak hours.

      Need to do calculation to see if it’s worth it though for each person’s use case.

  6. Kelly Jean Hood

    If your nice a year I get money back should I go to the higher rate they charge so I can get more money back?

  7. Ed Ison

    So, if you have solar generating at a peak time for which the cost of energy is .39 cents per KWh and you don’t use energy at that time, but use it off peak when the cost is .13 cents per kWh, you will be able to use three off peak KWh for every on peak KWh generated?

  8. David Neufeldt

    I’ve been searching the internet off and on for days attempting to understand TOU rates and their impact on residential solar. You’ve painted a very clear picture and helped me much more than any other sources that I’ve looked to. Thank you so much for this article! !


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