Utilities vary prices by time of day and season to encourage buildings to reduce energy use during peak grid load. If you’re not winning the energy efficiency game, you’re losing.
Tick tock, your energy costs are going up
Utilities vary prices by time of day and season to encourage buildings to reduce energy use during peak grid load. If you’re not winning the energy efficiency game, you’re losing.
What are time-of-use rates?
Patterns of energy use across the entire grid are highly predictable. Energy use drops on nights and weekends as business close and residents sleep. Energy use peaks during summer months when high temperatures drive greater air conditioning load. These peaks are expensive for utilities, who have to provision sufficient generation capacity to handle maximum grid load. To reflect these costs, an increasing number of utilities are charging time-of-use rates that vary with time of day, day of week, and season. The structure of time-of-use rates varies by utility, but the idea is generally the same. For example, a utility might charge low prices on nights and weekends, higher prices during shoulder periods on weekday mornings and evenings, and highest prices on weekday afternoons, matching rates to overall demand.
Why care about time-of-use rates?
Because of the complexity of time-of-use rates, most facility managers track total electricity use and calculate blended average rates. Such metrics can be useful for comparing buildings at the portfolio level, but they are less helpful for operational planning. For example, imagine two efficiency projects, one that reduces air conditioning load and another that reduced lighting use during off-hours. The air conditioning project is going to have its biggest impact during expensive peak periods. The lighting project, on the other hand, is mostly going to offset cheap non-peak use. Both projects might be worthwhile, but blended average rates will give a misleading picture of project payout. Time-of-use rates reward facility managers who can find ways to shift use away from peak periods. Understanding how rates vary by time of day is an essential part of managing your spend.
Winners and losers in the rate game
Utilities design their rates for cost recovery. That is, rates are calibrated — and overseen by regulators — to ensure that utilities cover the costs of transmission and generation, plus some extra for profit. This means that rate changes are effectively a zero-sum game. Time-of-use rates are designed to reward ratepayers who can shift electricity to off-peak periods. Those rewards are underwritten by ratepayers who can’t shift their use, and end up paying the higher on-peak rates. It’s a game with winners and losers. You may not be paying attention to time-of-use rates, but probably your competitors are.