Time of Use Shifts in CA
In this 20-minute webcast, we discuss:
- What is TOU (time of use) and why is everyone talking about it?
- Is solar still financially viable in California?
- What are some of the ways I can get a more definitive answer on what energy cost changes I can expect with time of use?
Watch the recorded webcast:
Craig: Hello everyone, welcome to solar tea time. I’m Craig Noxon, Vice President of Enterprise Sales. My special guest expert for this month is Chris Hiller, the Energy Solutions Architect at REC Solar. Let’s get started with some interesting discussion about the latest trends in solar. As the solar and renewable energy landscape continues to evolve, we often get questions that we know others must have so we decided to put on a semi-regular series where we can address these topics head-on in a fun and hopefully creative way. Today’s hot topic is time of use shifts in California. So, Chris I hope you have your tea in hand and I wanted to start off if you can just give us a little bit of background.
What’s happening with time-of-use shifts? What’s happening with customer’s bills today and what do these shifts potentially mean for them?
Chris: Thanks for the intro Craig. To really understand the time-of-use shift, we’ve got to first back up a little bit, just to make sure everyone has an understanding of how an electric bill is derived or sent to you from a utility company or third-party provider. Essentially your bill breaks down into two major components and it’s going to be your kilowatt hour charges versus your kilowatt charges. Kilowatt hours essentially is the flow of electricity over time. Your kilowatt charge is really your highest peak instantaneous load and that can happen at any one point in time during the month. Typically, depending on your utility, your energy charges are going to comprise about sixty percent of your bill and your demand charges, or your kW charges, that’s going to comprise about forty percent of your bill. Solar, because it’s dependent on the weather, can’t predictably offset your demand charges or your kW charges. When looking at an investment like solar we’re really just focused on the kilowatt hours. So with that, I think what we’ve got to do is back up to thirty years ago or so in the state of California when the current time-of-use buckets were set and essentially what that was was a lot of HVAC load in the state and that really drove the summer peak rate, if you will, that’s kind of your most expensive time to purchase energy was set between noon and 4:00 in SE territory or noon and 6:00 and PG&E territory. But really just right in the middle of the day when businesses are operating, that’s when electricity charges throughout the year were highest. So fast forward to today where we’ve got this proposed time-of-use coming from the utilities. What they decided to do, and working with the CPUC, was propose new times to charge those peak rates. They proposed somewhere in the range of 4 p.m. and 9 p.m. or even 5 p.m. to 10 p.m. So they’re looking to move that peak towards the later part of the day when people are getting home from work or businesses are ramping down. In effect, what that does is lower your energy rates during those summer peak times and they’re increasing your off-peak rates. So now the off-peak window is going to be a lot higher than it was before but your overall net effect of your bill is going to basically remain the same. So if you had a hundred thousand dollar-a-year electric bill in 2016, you’re 2018 projected energy bill should be right around that same value even though they’ve pushed these time-of-use buckets around quite a bit.
Craig: So the totals should be about the same but they’re shifting the buckets and the times around from what they used to be, correct?
Craig: And you said proposed so it’s not a done deal yet?
Do we know what those new time of use hours are going to be?
Chris: Yeah. The first one that was supposed to be voted upon by the CPUC was SDG&E and really what we’re talking about here are the three major utilities in California. So that’s SDG&E, PG&E and SCE. If you’ve got direct access on your facility and you’re buying your energy from a third party, your time-of- use shifts are going to have less of an effect on your bill then if you’re buying all of your energy retail or your electricity retail from the utility company. So that being said, SDG&E was supposed to get voted upon last month by the PUC but they’ve actually already postponed that decision. We’re supposed to hear about it probably sometime next month once the decision has been made it’s going to take them 45 days to actually write the tariff and implement the tariff but that date will probably also slip just knowing the utilities. So I think SDG&E is going to be coming out sometime this summer. We’re going to know and then we’re going to use that as somewhat of a litmus test as to what the CPUC is going to grant SCE as well as PG&E. The ruling on SCE is supposed to come out in October, November timeframe of this year and PG&E is supposed to be coming out in January of 2018.
Craig: Ok so clearly, this looks like it should have some impact for solar in California.
Can you speak a little bit about what you see as the impact that these two new shifts will have on the solar industry in the state.
Chris: I think on the whole, after modeling a lot of different scenarios over the last four months and kind of looking at the proposed rates as they have been proposed by the utility companies, our perspective is on the worst-case scenario so typically the utility company will go to the CPUC with some sort of a rate change. The utilities change their rates roughly four times a year and they enter into some sort of negotiation with the CPUC but in this particular case, again they’ve never asked to change the time of use periods and they haven’t done so for the last 30 years. In any event, in looking at the worst-case scenario essentially the CPUC, let’s assume the CPUC grants the utility everything that they’ve asked for. We’re still seeing throughout California that solar is right around that three to five year payback and some of them are better and some of them are a little bit worse and I think some of those cases I can just name off the top are PG&E Ag rates. Ag rates in PG&E territory have been subsidized for a number of years and it seems now during this time of use change in this new proposed rate they’re removing those subsidies on ag rates. Across the board everything I’ve looked at in the ag territory looks like ag rates for PG&E are going to go up roughly thirty percent, twenty to thirty percent which then correlates to really high savings for solar which means that if you invest in solar on an ag rate, you’re going to see better paybacks, you’re going to be closer to that three-year window versus something like an industrial rate in PG&E. I think the goal in PG&E territory as well as throughout the state is to implement renewables on site. You want to try to make the site eligible for option R. So all three utilities have this subsidized rate that is called option R, but it’s not available to ag clients so this really only pertains to commercial industrial rates and you have to install fifteen percent of your either annual energy load or your monthly kW. Your rating of your solar electric system would have to be at least 15 percent of essentially what you consume and that will then enable you to get onto this subsidized rate and for PG&E clients what that is is it essentially drops your demand charges by 50% or so, so most of your savings are going to come from your demand savings and typically we want to install at least you know 30 percent of your load on site in PG&E territory to really make that pencil. SDG&E territory is probably the best to go solar in although they’re probably the most primitive to work with. I mean SDG&E outsources everything but as far as rates go, SDG&E territory is really probably the best rate in the entire state. SCE rates probably are the most difficult to work with I would say under the new proposed shifts and that’s simply because they’ve lowered their demand charges or their energy charges and they’ve increased their demand charges more than anybody else. So again, solar can really offset the demand charge so when we’re just focused on the energy charge, the paybacks are not as good. But SCE still has option R available. We’re predicting that there’s a 400 megawatt cap. We’ve been tracking it and it looks like somewhere around Summer 2018 is when it’s going to be fully subscribed. If you want to get on option R in SDE territory, you need to contract for the end of this year.
Craig: for SCE the others do not have a deadline for option R?
Craig: Okay, option R is decreasing your demand, it’s increasing your energy charges and then the way to feel about it is if you do have solar you’re clearly decreasing your energy charges. The R is for renewable correct?
Craig: It’s only something available to solar customers?
Chris: You can install wind or hydro but again, trying to get a permit on a wind turbine in an industrial park is a lot more difficult than installing solar.
Craig: Yeah, okay. So I’m sure a lot of people are wondering, how do these TOU shifts apply to them and is there a way that they can figure out what these energy changes are going to mean for their bills coming up over the next couple years?
Chris: I would just say that bills are predominantly going to remain consistent. I would say the only outlier to that is PG&E AG customers on a grade like all the other well pumps in the valley those are going to be hit pretty hard. Outside of that, the rates themselves, the total blend when you go through the analysis and you had a hundred thousand dollar-a-year annual bill let’s say under the current time of use standards and then we go look at 2018 and what’s proposed, that same load profile, looking at all the interval data you put that into the into the new time use bucket, it still models out to roughly a hundred-thousand-dollar bill. They did that, you know, in talking with all the advocacy groups and talking with the CPUC there was a lot of forethought that was intentional because they didn’t want to create a new rate tariff structure and have everybody’s bill double or have a massive increase in annual electric spend because then that would potentially lead to lawsuits or litigation. So, for now I would say there’s probably not going to be a big monumental shift in the annual energy spend or electric spends but you know, it does impact the generation that you proposed you want to put on site. either it’s solar or cogen or what-have-you or storage, you know, different technologies converge.
Craig: Yeah let me ask you about that because so clearly one way to hedge against any kind of TOU shifts might be option R but a lot of people are talking about storage specifically in California.
How can that help people and impact their utility rates and payments?
Chris: When talking about storage, I think I zero right in on SCE and the proposed rates SCE put out because they really have increased their demand charges so much so that solar plus storage has the best, I would say, the best bang for the buck. The best rate of return for SCE clients. Predominantly TOU eight is the best rate tariff in the entire state for solar plus storage and then from there just kind of splinters out. There’s going to be some cases like on a GS2 and SD territory with option R where storage just does not make any sense or in a 10 SDG&E territory with option R doesn’t make any sense to implement storage. So I think it’s on a case-by-case basis. But really you want to focus on the rates where your demand charges are incredibly high.
Craig: Yep. Chris, we have just a couple minutes left and we had some questions come in. One of them is about,
What grandfathering periods will be available for current customers with solar?
Chris: Current customers with solar are grandfathered in for the next ten years under the current time of use bucket. But, you will be subject to the new rates that are going to take them back or if your system is not already installed you have to have an installed solar electric system by July 31st of this year and you would have had to have submitted an interconnect application by January 31st 2017 in order to be eligible for the grandfathering. Or if you’re a school, you can have your system installed by December 31st of 2017 in order to be grandfathered in.
Craig: Okay I think maybe one last question. You touched on this a little bit but can you more explicitly talk a little bit about the ROI trend for solar and specifically do you know why we are seeing an improvement in a payback curve for industrial installations?
Chris: This is my 16th year in the solar industry in California, let’s just say in the last 10 years, there’s been a lot of comings and goings of various tariffs on modules and there’s just a ton of noise in the market consistently. But the funny thing throughout all of that is that paybacks for solar still remain roughly a three to five-year payback, even though energy rates or solar might not be as good as what they were previously. We just had a 30% reduction in modules six months ago and, it’s like all the market forces are focused to keep solar roughly, you know, depending on your situation, somewhere in that zone of a three to five-year payback. Somewhere around fifteen to twenty percent rate of return. I think it’s consistent across the board.
Craig: And in some slots in California even better I’ve seen. Chris we are out of time. Thanks for your insight and advice and I think it is time for me to get my next cup of tea so if anyone would like to talk to Chris about your TOU shifts, feel free to send an email and you can also email us with other questions and we look forward to the next solar tea time which will be on the second Tuesday of every month. The second Tuesday of June will be our next session. We’ll send some topics just beforehand so on behalf of everyone at REC Solar, thanks. Cheers. Bye bye.