The Importance of Maintaining Rate Choice for Solar Customers

There has been a flurry of activity and news coverage on efforts to rectify problematic language in California Senate Bill 1 requiring new solar customers to take time-of-use (TOU) energy rates. The passage of AB 1714 on June 7th removes the requirement for solar customers to switch to TOU rates until after 2009, and allows customers that install a solar system before then to stay on their existing rate. A complete elimination of the requirement is still needed, but this was the best immediate solution that was agreeable to all parties.

The effort of state leaders to move this solution at lightening speed should be underscored. AB 1714 was introduced on May 15th as a bill to provide relief from the TOU requirement and signed by the Governor a scant 23 days later. It was marked an “urgency bill” in order to come into effect the day it was signed and required a 2/3 vote, which made a quick passage more complicated.

The bill was sponsored by Assemblymember Lloyd Levine (D-Van Nuys) and Senator Christine Kehoe (D-San Diego), chairs of Assembly and Senate utility committees, and supported by a bipartisan group of legislators and the utilities. Coordination throughout Sacramento made the quick passage possible.

Concurrently, California Public Utility Commission (CPUC) President Michael Peevey issued a Proposed Decision on May 16th to accept a Petition to Modify jointly submitted by Vote Solar, PV Now and CalSEIA requesting that the Commission waive the TOU requirement. The Commission shortened the normal comment period so that the decision could be approved at the June 7th CPUC meeting once AB1714 was signed by the Governor.

The reason state leaders were scrambling to provide relief for the solar industry was that residential solar installations are down considerably since the California Solar Initiative (CSI) started. The TOU requirement was not the only reason for the drop in solar installations, but a major one that required a legislative fix. The Governor, Legislature and PUC needed to act quickly and in concert to keep the CSI moving. 

Figure 1: First quarter incentive reservations have dropped in comparison to previous years

The reasons why requiring TOU rates and limiting rate choice for solar customers is so problematic is that it has received less coverage. Solar produces energy at peak times and reduces peak energy usage, how can requiring time-of-use rate, that vary with time of day and season, make solar more expensive for customers? The answers are complex, but worth understanding.

The first point of clarification is that TOU energy rates can be beneficial for solar customers. Many solar customers choose to switch to a TOU rate because the high peak energy charges that are offset by solar can provide greater savings than the flat energy rates that most customers currently use.

However, the benefits of TOU rates are very dependent on the customer’s energy requirements, load profile (when they consume energy) and the amount of solar that can be installed on their roof. Some customers, such as those in hot climates, running home businesses or retired persons have peak energy needs that are difficult to control. Customers who purchase a solar system could be exposed to higher energy bills when forced to switch to a TOU rate then they would experience with their existing flat energy rate.

A thorough analysis of the impact of the TOU requirement on Southern California Edison (Edison) residential customers illustrates the dynamic between solar and TOU rates. Using Edison’s own model and average customer load profiles from Edison’s three climate regions, we determined that unless customers were able to meet at least 60-70% of their annual peak energy requirements with solar, the requirement to take a TOU rate would negatively impact the customer. The figure below shows that as the portion of customer load met with solar declines, the simple payback (the time it takes for the system to pay for itself through energy savings) becomes longer when the customer switches to a TOU rate, in extreme cases the payback time could more than double. 

Figure 2: As the portion of energy met with solar goes below -70%, solar payback time with a TOU rate gets longer in comparison to a flat rate


Very large customers are more likely to benefit from a switch to TOU rates, unless they have the high peak load requirements of a desert customer. It is important to note that these analyses were developed using average load profiles. So customers in the coastal and inland regions with high peak energy needs will be negatively impacted by the TOU requirement in a similar fashion to the desert customers in the Figure 3. 

Figure 3: For very large customers, TOU rates can be beneficial, except for customers in hotter climates or with high peak energy needs

Since TOU rates can be beneficial for customers if the solar system is large enough to meet more than 60-70% of their energy requirements it would seem that requiring TOU rates should not be such a big problem. However, customers face restrictions on the size of systems they can install. Some customers lack roof space to site a large system, while others do not have sufficient roof space with the right orientation. Another limitation is that customers may not have sufficient cash or credit to purchase a large enough system to make TOU rates work, this is especially true for the low-income customers that the CSI is targeting.

This phenomenon is not restricted to the residential sector. There are many commercial and public customers, such as schools, that want to install a small solar system but that will not if they are required to convert the entire facility to a TOU rate. The exposure to high TOU energy charges is simply too high and the overall energy bills could go up.

In addition to physical and financial limitations, the uncertainty involved in the switch to TOU rates can be very problematic. Customers on flat rates do not have accurate information on their hourly consumption because current meters simply measure total monthly consumption. Without accurate data on a customer’s hourly energy consumption it is difficult to predict the financial implications of switching to a TOU rate. For customers that will clearly benefit from a TOU rate this is not a problem. However, for customers that could be negatively impacted by a TOU rate, this introduces uncertainty that will turn customers away from purchasing a solar system.

There are many reasons that requiring solar customers to take TOU rates is problematic. AB 1714 is a temporary solution that was achieved with widespread collaboration between the Governor, legislature, utilities and the solar community. We’ll continue to work towards a permanent solution that works for the widest variety of customers across the state. Now we can focus on the other issues that need to be resolved to ensure that the California Solar Initiative continues to be the country’s best.

JP Ross is Policy Director at Vote Solar, a non-profit advocacy group dedicated to bringing solar into the mainstream. Vote Solar is active in the development of solar PV markets across the country, brining both policy expertise and grass roots support to clean energy campaigns. JP holds an MS in Energy and Resources from Cal and is on the board of the American Solar Energy Society.