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Electric Rates and the Benefits of Solar

Installing solar will save you money on your electric bill. There is no doubt about that. The question real question is – how much money will it save you? That can only be answered if you understand your electric bill.

If you are on a simple electric rate where you get charged a certain dollar amount per kilowatt hour (kwh), then calculating the payback on your solar power system is easy. Figure out how many kilowatt hours the solar will produce, multiply that by how much you per kwh and there is your number. 

But it is not that easy for everyone because there are more complicated electric rate structures. The math gets a little trickier if you are on a tiered billing rate or time of use (TOU) rate and things get really interesting if you have demand charges. Another factor to consider is how your electric company pays you back for the excess power you feed into the grid when your solar is generating more than you are using.  

Sample tiered billing system where the electric company charges you more per kWh when you use more electricity.

Tiered billing is a system where the electric company charges you more per kwh when you use more electricity. For example, they would charge $.19/kwh for the first 10 kwh you use in a day, then $.24/kwh for the next 40 kwh and then $.42/kwh for anything over that. If you are very conservative with your power usage and stay at the $.19/kwh – $.24/kwh range, the solar takes longer to pay for itself because you are paying less for your electricity than someone who is using a lot of power and is paying that $.42/kwh rate. 

On a tiered billing rate, the solar is still worthwhile for the conservative user who is only in the lower pricing tiers, but it will have a little bit lower return on investment than it would have for the excessive electricity user. This is because the solar knocks out the higher priced electricity and the more you save per kwh, the faster the solar pays for itself. 

time of use solar electric bill
Sample time of use billing system based on when you use your electricity.

Time of use (TOU) rates are based on when you use your electricity. A typical time of use rate would be that energy used between 3pm – 8pm (peak time) costs $.25/kwh and energy used at any other time of day is only $.15/kwh. The electric companies do this so that the consumer will try to use less power during summer afternoons when the electric company is struggling to keep up with the high demand of all the air conditioners that are running.

When time of use customers install solar, they typically get credited the peak rate for kwh that they feed into the grid during peak time. This means they should try to face their solar panels to the west or southwest to get more output in the afternoons when the energy is the most expensive. It also might increase their savings to install a battery to store the excess energy generated during off peak times and feed that into the grid during peak times. If the peak time is later in the day (like 5pm – 9pm), a battery would increase the savings even more because even west-facing solar panels will not produce much power after 7pm.

Demand charges are typically only seen on commercial buildings. The electric company adds a charge to the bill based on the largest amount of power the facility used at any one time that month, even if it was only for 15 minutes. They do this because it is a strain on their infrastructure when one consumer uses large amount of power all at once. Demand charges can be very high, often accounting for half of the electric bill on large commercial facilities.

Solar by itself will help demand charges but if there is a high demand at night or on a cloudy day, the customer is still going to be billed for that high demand. This is another case where a battery system could be helpful if it is set up to provide some of the power needed when the facility has that high power demand which lowers the amount of power needed from the electric company which lowers the demand charge. There are also times when the electric company will reduce demand charges as an incentive for their customers to install solar so that is another thing that can make a big difference on the solar savings.

So, if you are on a simple electric rate, calculating what the solar will save you is easy peasy. But for those of you with a tiered rate, time of use rate or demand charges, you will probably need help from someone with the experience and the software needed to model your case and advise you on how to get most savings possible. Fortunately, is here to help so feel free to contact us for assistance. 

Author: Harold Tan

I believe clean, renewable energy is key to the evolution of society as a whole. Solar powers our planet, why not harness it to power humanity? Let's power our homes, our work, and our vehicles with solar energy. It begins with raising awareness and encouraging those around us to go green.

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