Especially during the cooling season, the load on the electric grid varies greatly at different times of the day. Peaks coincide with people getting ready for or coming home from work, and with the hottest part of the day, when the most air conditioners are running full-blast.
Utilities need to be able to safely meet the peak demand, and they accomplish this through a combination of “peaker” generating facilities and energy purchase contracts. But peak energy is the most expensive for the utility to maintain since these power plants have to be ready to supply energy only during peak usage times, and sit idle other times.
To encourage decreased use during peak periods, time-of-use (TOU) rate plans charge more for electricity when there is more demand and less when demand is reduced. Lower-than-normal rates in off-peak times compensate for the increased on-peak rates, potentially reducing electric bills and reducing the amount of peak capacity the utility must have available.
The details for TOU rate plans—including whether or not net-metered PV systems can take advantage of them—can vary considerably and can be complicated to decipher. But often, a PV system’s highest production—during the peak sun-hours between 9 a.m. and 3 p.m.—also coincides with the highest peak grid usage. If excess PV energy is credited in dollars at the higher on-peak rates, then the credit can be used to purchase lower-priced, off-peak kWh at night, when the PV system is offline. This can tremendously lower the system’s cost per kWh.
Another possible TOU scenario is when excess energy can only be used as a credit during the period in which it was generated. This is the most difficult situation to assess, and requires careful analysis of system production and load by period, as well as how annual surplus is accounted for.
For customers who already have TOU metering and are adding a PV system, detailed billing history will usually break down total consumption into on- and off-peak periods. Customers with higher on-peak usage are most likely to benefit from the combination of PV and TOU. This includes home offices, commercial and industrial facilities, and households with large daytime loads.