Taking Advantage of California’s Renewable Energy Requires Getting Time-of-Use Rates Right
The nation’s solar leader has a unique chance to empower customers with inexpensive clean electricity.
n one day this summer, solar alone provided nearly a third of peak electricity demand in California, in what has become a routine record-setting performance. As air conditioning ramped up across the state, California deployed more solar and avoided the construction of new gas peakers and transmission and distribution capacity.
This spring, renewables accounted for more than 50 percent of generation on several occasions.
The middle of the day is when electricity system operators have historically wanted customers to conserve energy — but now power is increasingly cheap, clean and plentiful at those times. The Public Utilities Commission rightly thinks time-of-use (TOU) rates are one place to look for opportunities to take advantage of midday clean power.
However, California must make sure that new TOU rates send the right price signals to customers and empower them to deploy clean energy, especially as the state moves toward a system where most customers are on default or mandatory TOU rates.
Getting it right will incentivize greater use of clean energy; getting it wrong will discourage the customer investments that have made the state a renewable energy powerhouse.
Many states have shown that customers respond to TOU rates by trimming their air conditioning, delaying use of appliances or making other actions to cut usage during hot summer days. California’s TOU periods would be a new frontier: trying to get customers to use renewable energy when it’s ample.
With generation costs falling in the middle of day, and concerns about the now-famous duck curve, California utilities have proposed changing their peak periods from midday into the evening.
Their argument is that if we move time periods to match new low-cost midday electricity generation, customer energy usage will shift to match demand to the lower-cost periods. However, while electricity generation costs are now most expensive in the evening, analysis by SEIA shows that distribution and transmission costs are still most expensive in the afternoon, suggesting that on-peak periods should be earlier.
Given the higher transmission and distribution costs earlier in the day, incentivizing customers to use more electricity in the afternoon could have the unintended consequence of increasing load just as distribution systems are most strained; it would also dampen the incentive for distributed solar to help relieve strain on the distribution systems during these times.
Give customers options that empower them to save money while supporting the electricity system
Providing cheap electricity in the middle of the day is a great opportunity for a business that can run equipment at times when its cheapest or a customer who is home in the afternoon and can do their laundry. But such rates could frustrate customers who are at work during the day and return to cook dinner, do laundry, and otherwise use electricity when it is now most expensive.
There is an easy fix. Regulators can create a “TOU-lite” rate for each of the utilities that encourages customers to save energy at peak demand periods, but doesn’t penalize them if they can’t. This can be the default rate that most customers are on.