Solar Battery Storage Blog

Learn about the advantages of solar with battery energy storage

October 28, 2019

What Are Time-of-Use Rates (and How Do They Impact Your Business)?

Just as with most products and services, electricity is subject to the law of supply and demand.

As more customers consume power, there is a greater strain on the electricity grid. As a result, utility providers charge higher prices to reflect this changing demand.

Historically, this “peak” demand occurred during daytime hours (i.e. 12 PM to 6 PM) when:

  • Businesses were still operating at full capacity
  • Families beginning to return home for the day

And to accommodate this shift, utilities used time-of-use (ToU) pricing by charging:

  • Peak rates whenever demand was highest
  • Off-peak prices when demand decreased

For business owners, this meant daytime operational hours could be very expensive.

However, the growing popularity of commercial solar power allowed companies to better manage ToU pricing and avoid paying exorbitant rates. This is because photovoltaic (PV) panels generate clean energy from free sunshine during the day – precisely when historic grid electricity rates were highest.

But then something unusual happened.

How Solar Power Helped Create the Duck Curve

Many utility markets experienced so much new solar capacity that the traditional supply/demand curve started to shift. This was especially true in California – one of the most active solar markets in the world.

Known as the “duck” curve, due to its strange shape, this new supply/demand curve reflected the growing imbalance between utility electricity and the rise of grid-tied solar power.

In California, for example, peak demand is now between 4 PM and 9 PM. This time frame represents when solar power generation halts for the evening, forcing utilities to scramble as they bring on additional electricity capacity as quickly as possible.

Note that businesses can still save money by going solar. But because of new peak demand times, it’s now harder to avoid ToU pricing. Managing this shift is particularly challenging for businesses that follow evening hours – e.g. theaters, factories, and restaurants.

Commercial solar power remains an indispensable component of intelligent energy management—and generating clean electricity from free sunshine will always be a winning strategy. But on its own, solar power is becoming less sufficient in today’s rapidly evolving consumer energy landscape.

Remember that the “duck” curve is not set in stone. It only reflects the current solar capacity in each utility market. As more homeowners and businesses install PV panels, the duck curve will continue to evolve – making it even more difficult to manage energy costs effectively.

The solution?

Solar Power with Battery Storage

When combined with solar power, on-site energy storage allows users to control when and how much electricity they take from the grid. In effect, they can choose whatever power is cheapest at that exact moment in time, whether it comes from:

  • Solar panels
  • The utility grid
  • On-site batteries

The 2 scenarios below illustrate how and why this works.

Scenario 1: Solar Power without a Battery Energy Storage System

Imagine you own a theater that opens its doors in the early evening – when ToU electricity costs are highest. If your theater has solar panels (but no battery storage), all of your PV system’s daytime energy production goes unused. Instead, you’ll feed your solar electricity into the grid under California’s Net Energy Metering (NEM) program.

The utility grid essentially “banks” this electricity – acting as virtual battery storage for your PV system’s daytime energy.

You receive compensation for this solar electricity in the form of credits but with a small cost.

Once the sun goes down, your panels stop working and you’ll have to buy back whatever electricity you need from the grid.

Scenario 2: Solar Power with a Battery Energy Storage System

Now imagine that your theater has both PV panels and on-site solar batteries.

The entire dynamic changes:

  • During the day, your solar panels bank all of the energy generated in on-site batteries – instead of feeding this electricity into the utility grid.
  • At night, there’s no need to rely on grid power. You can use your stored daytime energy and avoid paying peak demand rates for utility electricity.

The Mary Pickford Theater used this very strategy with its 620 kW solar array and 1 MW energy storage container. And in just its first year alone, the theater saved nearly $230,000.

Solar Power with a Battery Energy Storage System

Read the Mary Pickford Theater case study

If utility rates continue to rise as expected, so will their savings. In fact, the Mary Pickford Theater is projected to save about $5 million over the next 20 years.

Your own business may follow a different schedule (most do). But the basic concept is still the same. Adding batteries to your solar installation gives you the flexibility to use whatever electricity is cheapest at that moment – whether it’s from your panels, on-site storage, or the power grid.

How a Solar Battery Energy Storage System Can Impact Your Business

Can “Future-Proof” Your Business

The 2 biggest expenses for most businesses are electricity and employees. In California, both of these costs are expected to increase:

  • The minimum wage will jump to $15 an hour in 2023. This means labor costs doubling for many businesses.
  • Utility rates (in general) and ToU pricing (in particular) will also both become more expensive. This would happen even without PG&E’s recent bankruptcy. But the utility’s woes will only make this trend worse.

Against this backdrop, businesses face tremendous pressure as they try to protect dwindling margins. No company is immune from this growing shift – not even those who have already made the wise decision to go solar.

However, those companies that invest in both solar and on-site storage enjoy measurable savings immediately.

This combination helps to “future-proof” your business, allowing you to:

  • Avoid time-of-use rates
  • Reduce operational costs
  • Cover rising wages
  • Protects your margins

Both today and for decades to come.

Why Delaying Your Solar Battery Investment Is a Mistake

Because of the above benefits, nearly every business will eventually embrace solar power and clean energy storage.

Not only is this combination a significant money-saver, but it’s also much better for the environment since you’re no longer relying on fossil fuel generated grid electricity.

However, 2019 is the last year in which solar power and battery storage qualify for the current Federal Investment Tax Credit (ITC). Under this incentive, qualified projects are eligible for a 30% tax credit from the IRS that covers both parts and labor.

After 2020, the tax credit drops down to 26%. This means delaying your solar + battery investment will actually cost you more money.

In addition, under Section 179 of the tax code and the IRS’s bonus depreciation rule, you can deduct the cost of any projects that improve your business. Combining these tax benefits with your solar savings allows you to recoup 65% of your investment in the first year alone and the return on investment can be less than 5 years.

On the state level, California has a Self-Generation Incentive Program (SGIP) that currently provides additional funding to cover 10% to 12% of your total project cost. Thanks to SB 700 signed by Governor Brown in 2018, SGIP has been extended through 2025 and has added up to $800 million—totaling $1.2 billion in on-site energy storage incentives. Not only will this help the growth of solar in California, but it will make solar with battery storage solutions more affordable to those being affected by time-of-use rates.

To learn how our battery energy storage systems can help lower your operational expenses, request a Commercial Solar Analysis from us today.

Request Commercial Energy Analysis

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