Utility companies were designed for dependability, not necessarily adaptability. They are supposed to keep the power on all the time, and when it does go off, they are supposed to turn it back on quickly. But they are not good at change, and lots of change is coming for them.
After more than a century of running more generators when demand is high and slowing them when demand is low, the world has changed around them. Nowadays, utilities have to rely on cheap renewable energy that is only available when the sun is shining or the wind is blowing.
Meanwhile, the cost of generating energy using traditional methods varies a lot based on the types of fuel and the efficiency of generators. The most expensive types are only used at the very highest demand times. That means the cost to generate power fluctuates a lot over the course of the day.
At the same time, ratepayers are generating electricity on their rooftops and selling it back to the utilities. They are also plugging their cars into chargers and regularly drawing enough energy from the grid on a single night to run a house for days, all just to charge their EVs.
Change is here, and utilities are going to handle it the only way they know how. They’re going to charge their customers for it.
The energy sector is undergoing a transformative shift as utilities across the nation introduce something called Time-of-Use (TOU) rates for residential consumers. This new rate structure is designed to charge consumers more when electricity generation is more expensive. Unraveling the intricacies of time-of-use rates holds the key to avoiding an unwelcome surprise when you open your electricity bill, and can even save money over conventional billing schemes.
Time-of-use rates adjust electricity costs according to a predictable pattern throughout the day. Rates are low when generation costs and demand are low and rates are high when generation costs and demand rise. In places where renewable energy plays a big role in energy generation, that predictable pattern looks like a duck’s back and is known as “The Duck Curve.”
The curve tracks the difference between renewable energy generated and energy demanded. The tail of the duck is the first peak of the day when the sun isn’t generating much electricity, but people are using a lot of electricity to get ready for their day. The curve then swoops low like a duck’s back as the sun generates lots of energy, but many people are away from their homes. The curve then forms the neck and head of the duck, peaking as the sun goes down and people come home, turn on the TV, or do some laundry as they prepare their dinner.
TOU rates are higher at the tail and neck of the duck. Under Pacific Gas and Electric’s current TOU plan, for example, the energy you use during those peak hours could cost as much as 35% more than off-peak.
Time-of-use rates aim to align consumer electricity costs with the actual cost of production. During those peak hours, utilities have to burn more fossil fuels to generate enough electricity. That’s a much more expensive process these days, so electricity costs more during those peak times. By aligning the consumer price with those increased generation costs, utilities hope to encourage ratepayers to use less energy during peak times and rely more on cheap, clean, renewable energy during daytime hours.
Most utilities offer TOU rates as an option. California, often seen as the leader in energy policy, first offered TOU rates to large-scale commercial customers as far back as the 1980s. After gradually shifting others to the new scheme, all California residential customers were defaulted to TOU rates in the summer of 2022. There are proposals for other states to follow suit.
To see what programs are available to you, check out Energy.gov’s page on time variable pricing.
The implementation of time-of-use rates faces three fundamental questions: Can well-designed rates save customers money and reduce peak demand? Will consumers comprehend and navigate the differences between peak and off-peak prices? How do we address the needs of customers with limited flexibility and specific requirements?
Low and moderate-income customers pose a unique challenge in the adoption of time-of-use rates. While concerns exist about potential disadvantages, advocates argue that well-designed rates, coupled with effective customer education, can ensure fairness. However, limitations in access to enabling technologies remain a hurdle for many low-income customers.
If you are defaulted to a TOU program and make no adjustments to your power consumption, your power bills can really spike, especially during the hot summer months. On the other hand, if you can flex your consumption away from peak times, there are real savings available. This is why joining Demand Response programs like OhmConnect can go a long way towards lowering your bill. And, of course, OhmConnect also rewards you for saving energy at specific times. Although the peak rates can be high, off-peak rates offer the opportunity to save money by using electricity when it’s cheapest. A couple of ways to take advantage of savings include:
Charge your EV overnight--A big part of the electricity mix is something called “base load.” This is energy from sources that can’t easily be shut down, such as nuclear reactors, hydropower plants, and natural gas generators that are designed to run 24/7. Of course, power consumption goes way down during the wee hours of the night when businesses are shut down, and people are sleeping, so setting up your EV to charge during those quiet hours is often the cheapest way to power your ride.
Do your laundry during lunch—When your clothes dryer is running, it is often the biggest power draw in your whole home, including the HVAC system. If you are home during the day, taking time for your laundry between peak hours can really save money.
Turn off the lights—Not all of them, of course. But avoiding any unnecessary power usage during peak hours can really add up.
Join OhmConnect to save energy–When you become a member at OhmConnect, you’ll get notifications about specific hours (usually weekday evenings) when demand is expected to be very high. We’ll automatically power down your smart devices during those hours, and you’ll be rewarded with prizes or even cash.
Go solar--Investing in solar energy also presents a viable strategy for mitigating the impact of peak pricing under time-of-use rates. Solar-plus-storage systems offer a comprehensive solution, allowing consumers to harness solar energy during the day and store it for use during peak periods. This not only reduces reliance on the grid but also contributes to long-term cost savings.
The gradual shift towards time-of-use rates represents a pivotal moment in the evolution of residential energy consumption. As utilities navigate the complexities and skeptics raise valid concerns, the potential benefits, including reduced peak demand and increased consumer savings, cannot be overlooked. The key lies in fostering understanding, addressing challenges, and ensuring inclusivity as the energy landscape continues to evolve.
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On this episode of Smart Energy, we're chatting about making small habit changes in the New Year, the energy grid with Elysia Vannoy, and answering a listener's question about what to do with old holiday lights.
