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Electricity rates explained

Understand the utility charging structures for new solar customers

There are two billing concepts to understand: net metering and time-of-use billing.

As a new solar customer, your utility company will assign you net metering and time-of-use billing. Here, we explain how they work.

Net metering

Net metering is a give-and-take agreement between homeowners who use rooftop solar systems and utility companies like SDG&E. The current agreement, regulated by California’s Public Utility Commission, is called Net metering 2.0.

The agreement enables solar customers to export excess electricity they produce from their solar panels back to the grid and receive a credit, which can then be used to pay for any electricity they pull from the grid when their solar system isn’t producing electricity, such as in the evening or at night.

Net-metered billing occurs seamlessly. When surplus electricity is generated, a homeowner’s net meter runs backward as credits are issued by the utility company. When electricity is used from the grid, the meter runs forward, recording the amount of grid-based electricity consumed.

Each year, a reconciliation process occurs between the homeowner and the utility company. This process determines whether a home has used electricity from the grid that isn’t offset by any extra energy it has generated, in which case the homeowner will owe money to the utility company (in addition to meter service and other set monthly charges). When a home generates more power than it uses over the course of a year, the utility will pay the homeowner the wholesale value of the unused kilowatt-hours.

It used to be that your excess electricity produced during the day would easily cover your evening/night consumption off the grid. But time-of-use billing has changed things in favour of your utility company.

Time-of-Use (TOU) billing

Time-of-Use (TOU) is a billing structure that in most cases, favors your Utility. It means the rate you pay for electricity varies according to the time of day it’s used.

As you might have guessed, rates are highest exactly when people use electricity the most – in the evening. For example, using electricity between the hours of 4 pm and 9 pm will cost much more than it would at 3 am or 11am.

This also means solar energy that is exported back to the grid during the daytime under net metering will earn fewer credits. So, there’s a chance that daytime credits might not fully offset the cost of high-priced evening electricity. In other words, TOU has the potential to decrease the return on investment you get from a solar power system, depending on your electricity usage.

Home battery helps solve the TOU problem

A home battery enables you to do something called Time-of-Use Peak Offsetting. Rather than export excess electricity back to the grid, you use it to charge up your battery. You then use electricity from the battery rather than the grid during the peak expensive evening hours, thus avoiding high-tariff rates. With this, you reduce dependence on the grid and become more energy independent.

And, even better, batteries allow you to take advantage of arbitrage (also known as TOU arbitrage). Rather than export your excess solar energy back to the grid during the day — when the rate of credit you’ll receive from the utility is at its lowest — you store the electricity in the battery until peak hours and then export it, when the credit you’ll receive is at its highest.

Other utility fees to expect

New solar customers will pay a one-time, nonrefundable interconnection fee. They must also confirm their equipment includes a minimum 10-year warranty.

You’ll pay recurring non-bypassable charges (NBCs) of about two to three cents per kilowatt-hour on grid-generated electricity. NBCs help fund low-income and other programs to maintain the power grid. They do not apply to energy generated from solar panels.

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