What You Need to Know About Time-of-Use Electricity Rates
Time-of-Use rates are one of the newest ways energy utility companies are changing how customers pay for their power. They aim to encourage customers to shift their electricity usage from high-demand times to periods of lower demand.
This new approach aligns the price of electricity with the cost of generating it. It also helps promote a more stable electric grid by reducing the number of power peaks that must be produced and managed.
What Is TOU?
Energy utility companies use time-of-use electricity rates to encourage customers to shift their energy usage to off-peak hours when demand is low and renewable power sources are most abundant. This helps promote a more efficient and sustainable power grid, reduces strain on the local electrical system, and reduces costs for everyone involved.
TOU rates are part of a broader category of innovative utility rate structures that change how much you pay for electricity throughout the day. These time-varying rate plans offer lower prices late at night when demand is low and higher prices during the times of day when electricity is more expensive to produce.
In contrast, flat-rate electricity plans charge a fixed amount for all the energy you consume. This may make it difficult to see how much you spend on your electricity bill, leading to confusion and frustration.
A TOU rate plan typically consists of an Energy Delivery Charge and a Market Price Charge based on electricity generation costs and the wholesale energy price. Rates such as electric rates in Pennsylvania encourage customers to shift their energy use to off-peak hours by charging more during peak times, which can help lower your electricity bill. This can be especially helpful for consumers with solar panels in their homes, which generate electricity during the day and store it for use at night.
Why Do Utilities Use TOU?
Utilities use TOU rates to help manage power supply and demand. During peak times (often summer days and evenings), they need extra energy resources to keep the grid working smoothly and reliably. Using these resources costs money, so utilities pass that cost on to customers through higher electricity rates during those hours.
During those peak hours, utility companies charge the most for every kWh of energy you use. This is because they need to generate that energy at those times or buy it from other sources at a higher price to meet demand.
In the summer, air conditioning uses a lot of electricity to cool down homes and businesses, causing peak demands. During winter, electrical heating systems also drive peak demand.
Time-of-use rates are a type of innovative rate structure that vary the rates you pay for electricity based on the time of day and the amount of electricity you use. This means that each period you choose has a different rate, and you can save money by shifting your usage to those periods when prices are lower.
Time-of-use rates are a new option that utility companies are trying to offer residential customers. The goal is to allow customers to shift their usage to off-peak hours, reducing their electric bill and saving the utility money on energy costs. But there are many questions about TOU rates that have stalled large-scale implementation. These include concerns about fairness, whether they can encourage customers to save money and reduce their peak loads, and how they impact low-income customers.
What Are the Benefits of TOU?
Residential customers are currently charged a flat rate for electricity, usually expressed in dollars per kilowatt-hour (kWh). However, that rate can change as the cost of electricity changes throughout the day. This is known as time-of-use pricing or TOU for short.
Time-of-use rates can help consumers save money on their energy bills by allowing them to adjust the time of day they use electricity. Typically, electricity costs more during the “peak” between 4 p.m. and 9 p.m. The grid relies on fossil fuel power plants to create more electricity during these hours.
But TOU rates also allow customers to shift their energy away from peak periods, which can help lower demand and decrease the need for additional electricity generation plants. This means a cleaner, more stable grid.
The key to implementing TOU rates is educating consumers about their options, which is why we have found that content marketing can be a powerful tool. Consumers can learn about TOU through several channels, including emails, bill inserts, and social media.
One of the most important ways to educate residential customers about TOU rates is through a customer education campaign, which helps ensure they know their new options. It’s also crucial to ensure customers can switch back to their standard easily, non-TOU rate, should they find it doesn’t meet their needs.
How Can I Use TOU to Save Money?
TOU billing gives customers control over energy use and pays less for power during off-peak hours. This can significantly impact your bill and is easier to achieve than it may seem.
In the past, residential customers were stuck paying a standard rate for all electricity used throughout the day and year, regardless of when that electricity was consumed. With TOU, customers can save money by shifting their energy use to a different time of day or benefit from efficiency efforts that reduce energy use during peak hours.
Understanding how it works is the first step to saving money with TOU rates. Wholesale energy prices are generally higher during the so-called “on-peak” times, which occur between 4 and 9 p.m.
This is because there’s a higher demand for energy during that time, which makes it more expensive to produce. So, by shifting your electricity use to off-peak hours during the day, you can lower your electricity costs and help support a healthier environment.
Consider switching to a home solar system or installing energy storage like battery storage to reduce your overall energy costs. A recent case study found that when owners of solar systems shift their usage from on-peak to off-peak periods, they can see an average of 22% savings across the lifetime of their system.
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