How CA utility rates bring value to commercial solar and energy storage customers

Borrego Solar knows that commercial solar deployment depends on supportive policies. That’s why we invest in our own policy team. With our finger on the pulse of policy changes and development, we take an active role in shaping the design of CA utility rates and other policies that impact commercial energy users.

As the Director of Policy and Business Development for the West, I spend a lot of time advocating for policies that expand renewable adoption and create value for commercial customers to adopt solar and energy storage.

How CA utility rates work

The California Public Utilities Commission (CPUC) regulates investor-owned utilities under a cost-of-service model. This means that the utilities may make investments in the grid and our energy system and recover those costs from customers through utility rates. The CPUC is charged with ensuring that CA utility rates reflect the cost of serving customers and incentivize energy practices that are good for the grid.

A typical commercial customer’s bill includes some mix of fixed charges, which are charges the customer pays each month; volumetric charges, or charges for every kilowatt-hour (kWh) of energy consumed; and demand charges, capacity-based charges for the customer’s highest energy usage over a given period of time—typically monthly. Under the state’s net metering policy, solar generation value is dictated by volumetric retail rates.

cost shifting during the day

The cost of serving customers is not evenly distributed throughout the day and year. Some seasons and hours are far more or less expensive than others. Commercial CA utility rates are structured to recover these costs on a time-varying basis.It used to be—and still is in many parts of the country—that rates were highest midday in the summer. It’s really hot and everyone is at work so office buildings have lights and AC on. When midday was the most expensive time to serve customers, that’s also when rates were highest. Since that’s also when solar production is highest, California solar customers saw the greatest production value.

But so much solar has come onto the grid that hot summer days are now well-served by abundant California solar. Now, the most expensive times are summer evenings when everyone is home using power, but solar production is lower.

The CPUC spent two years overhauling time-of-use periods associated with rates to reflect changes in peak demand and the cost of serving customers. Moving the peak period to the evening means that rates are now highest after the sun has gone down, and many commercial customers will see the most value from pairing energy storage with solar. Solar can power some midday operations while also charging a battery, which can discharge that stored energy during the evening peak to avoid more expensive rates.

This is one example of how utility rates serve as price signals to customers so they can  adapt their behavior to save money while best serving the needs of the grid.

solar- and energy storage-friendly rates

The CPUC has also developed solar-friendly rates, which commercial customers of investor-owned utilities can access. Option R (also known as Option E for SCE) reflects how distributed solar reduces demand on the grid. The rate converts a big chunk of demand charges into volumetric energy charges. If retail rates increase, so do volumetric energy rates and therefore solar generation value. This rate design creates value for customers by providing higher value for their generation.

Similarly, the CPUC is piloting a new rate just for non-residential energy users in PG&E territory who install energy storage. Known as Option S, it converts monthly peak demand charges into daily peak demand charges. This sends a price signal for customers to discharge their energy storage systems to reduce peak demand on the grid on a daily basis, rather than only once a month, while delivering meaningful bill savings to the customer. It also includes a 9 a.m. to 2 p.m. period that is free from any demand charges, reflecting the fact that these five hours are the least expensive for utilities to serve non-residential customers. Customers can shift operations or charge up their batteries during this window to discharge during the evening peak. Option S is not yet open but we anticipate high demand.

Borrego continues to work with our partners to encourage the CPUC to adopt real-time pricing rates and demand charge reform. Doing so would send cost-based price signals to commercial energy users while creating real value for those that install energy storage.

If you have a non-residential facility in California, reach out to our team today to see if you could benefit from solar and energy storage.

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