On 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.
Build TOU rates that benefit all parts of the electricity system
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.
The commission took this approach when it moved commercial customers to mandatory TOU rates -- and it makes sense to do the same for residential customers as they move to TOU rates in 2019.
Optional rates can be added to the “TOU-lite” default to enable customers who are better able to respond. SEIA has suggested the creation of "discount days" when customers would get an alert the day before ample renewable electricity production and little electricity use are expected, allowing customers to take advantage of electricity during the middle of the following day at a discounted rate.
Another idea is to make an optional rate that would encourage customers to charge a battery during the day and then use it during on-peak electricity periods in the evening. Typical TOU rates don’t have enough of a difference between on- and off-peak periods to make it worthwhile to install a battery. An optional TOU rate with a big differential between on- and off-peak periods could make it economic for customers to use batteries to shift their energy use.
Our state affiliate, CalSEIA, has crunched the numbers on how much of a difference would be needed. On average, the difference is about 33 cents between on- and off-peak periods. That won’t be possible in a standard TOU rate from the utilities. But as an optional rate, with enough certainty that rate will be available for the long run, customers could use it to store and shift clean power into the evening.
Make sure that customers have the certainty they need to make investments in response to TOU rates
If the commission moves forward with changes to the peak periods, then grandfathering is critical. Existing customers who have made investments in solar and other technologies in response to the old TOU periods, which have stood for decades, should be provided at least 10 years of grandfathering on the old periods. Not providing this grandfathering would send a strong negative signal to customers and discourage them from making future investments in solar or other technologies.
In order for TOU rates to have their desired effect, the state will need customers to make investments, particularly as it seeks to encourage energy use on spring days when electricity loads are low. Given the predominance of gas clothes driers, hot water heaters and other major appliances in California homes, investments in new flexible loads could be facilitated by TOU rates. More electrification could help decarbonize our buildings while making consumers' electricity use more flexible.
California has the enviable task of finding ways to put cheap, renewable energy to work for their residents. Let’s make sure that we get the right time-of-use rates that can enable Californians to take advantage of the opportunity.
Brandon Smithwood is the manager of California state affairs at the Solar Energy Industries Association.