THE EFFECT OF CALIFORNIA’S NEW TIME-OF-USE RATES FOR COMMERCIAL AND INDUSTRIAL CUSTOMERS CONSIDERING SOLAR PV

Solar-plus-storage is now more attractive than standalone PV for many non-residential customers

On December 1st, San Diego Gas & Electric (SDG&E) became the first of California’s investor-owned utilities to implement a new Time-of-Use (TOU) period that aligns the Peak time with the “head of the duck” curve.

Commercial, institutional, and industrial customers in SDG&E are subject to some of the most expensive demand charges in the country, making it an attractive market for Demand Charge Management (DCM). Unlike residential customers, many non-residential customers are subject to demand charges that are billed based on the facility’s highest monthly demand (measured in kilowatts), which can often exceed half of their total monthly utility bill. An energy storage system optimized for DCM can reduce demand charges by forecasting when the load will spike and then discharging the energy storage system to mitigate the peaks measured by the utility meter.

Many customers on the General Service tariff (Schedule AL-TOU) have been able to bypass these expensive demand charges by installing solar PV and switching to an alternative distributed generation tariff (Schedule DG-R). DG-R’s less expensive demand charges are offset by more expensive energy charges during the Peak period, which has up until now coincided with peak solar production hours. With net metering (NEM), excess solar production has been credited back at the Peak energy rate, which made the tariff switch to DG-R a win-win proposition for the solar customer.

Tariff Comparison: New Versus Old

SDG&E’s new tariffs shift the summer Peak period to later in the evening, shorten the summer season, expand winter Peak hours, and extend the TOU periods to include weekends. Part-Peak and Off-Peak have been renamed Off-Peak and Super Off-Peak respectively, with an additional Super Off-Peak period now introduced in March and April.

Figure 1: Comparison of SDG&E TOU Periods

Energy, demand, and fixed charges have gone up almost entirely across the board for both AL-TOU and DG-R. For customers on AL-TOU, demand charges during Peak time have increased 26% in the summer and 109% in the winter, while Max demand charges have gone down by 16%. The difference between Peak and Off-Peak energy charges has narrowed, reducing the potential for energy arbitrage. On DG-R, Peak energy charges have jumped up 38% in the summer to $0.5242/kWh and 80% in the winter to $0.2834/kWh. These tariff changes will most significantly impact recent and prospective solar customers, as TOU grandfathering only applies to ratepayers that filed an interconnection application prior to January 31, 2017.

Figure 2: Comparison of SDG&E Rates

Impact on Solar Savings

Geli compared the impact of the new rates and TOU periods across fifteen different facilities, including big box stores, hotels, grocery stores, office buildings, and schools. Solar savings decreased for all fifteen sites, with an average decrease of 26.2% on DG-R and 5.7% on AL-TOU.

This steep decrease in DG-R solar savings is illustrated in the example site analysis below, with nearly 40% of Peak period solar production shifted to Off-Peak under the new TOU periods. Given that Peak energy credits are significantly more valuable than Off-Peak credits.

The Case for Solar-Plus-Storage

Although SDG&E’s new tariffs will negatively impact the economics of most standalone solar PV projects, they strengthen the economics for solar-plus-storage systems. Between the Peak period shifting later to line up with evening demand and the increase in Peak demand charges, the value of DCM has increased significantly.

Contrary to the traditional strategy of switching to DG-R, most sites in our analysis saw an overall lower utility bill by staying on AL-TOU. This can be attributed to the following reasons:

  1. The DG-R baseline bill is substantially higher than that of AL-TOU
  2. AL-TOU solar savings decreased less dramatically
  3. DCM savings are much higher on AL-TOU.

Within the portfolio of sites we analyzed, solar-plus-storage systems[1] produced a median decrease of 23% with the switch to DG-R but a decrease of 31% by remaining on AL-TOU. For the example below, this translates to roughly $50,000/yr more in savings and total bill savings of nearly $79,000/yr. Even when considering the potential added value of TOU arbitrage present on DG-R, solar-plus-storage on AL-TOU still provides the best outcome for the customer.

[1] Solar+storage systems were sized to 25% of max load and solar sized to 90% of annual consumption for the purposes of this article; Geli’s analytics software sizes systems not as a percentage of load, but rather for maximum economic benefit

What does this mean for energy customers in California?

If you or your customer is considering installing an on-site solar PV system, not adding energy storage leaves significant additional bill savings on the table, especially now that solar PV is worth far less during peak production hours.

If you want to know exactly what solar-plus-storage is worth, sign up for Geli ESyst, Geli’s free solar-plus-storage site analysis tool. Geli provides the industry’s only design-to-automation platform, linking upfront analytics with the real-world operations. It even has SDG&E’s new rates already integrated.

About the Author

Kevin Diau is a sales engineer at Geli. Kevin joined Geli after completing a BS/MS in Renewable Energy Systems at Stanford University. Kevin is also the writer & director of “Pacific Powerhouses,” a documentary that details the opportunity and challenges in deploying renewable energy systems on Pacific islands.

About Geli

Geli, which stands for Growing Energy Labs, Inc., provides software and business solutions for designing, automating, and managing energy storage and microgrid systems. Geli’s suite of products creates an ecosystem where project developers, OEMs, financiers, and project operators can deploy advanced energy projects using a seamless hardware-agnostic software platform.

Founded in 2010, Geli’s software actively manages megawatts of projects deployed around the world.