Time-of-use periods are shifting at California investor owned utilities, creating a tailwind for commercial building energy OPEX.
Prices for electricity on the open market in Texas hit $9,000/MWh during a recent heatwave. Compared to one of our customers in Texas that just locked in their annual supply at $0.04/kWh, that is a 22,400% premium! Reducing use during these periods of high demand on the grid is clearly valuable. This value has led to such market innovations as demand response programs, peak demand charges, and time-of-use (TOU) periods. Incentives like checks from demand response programs and price signals during peak periods are designed to decrease usage when these stressful and pricey episodes occur on the grid.
Traditionally, peak periods of demand on electric grids were the hottest afternoons of the year, as in the recent episode in Texas. However, in California, this has not been the case in a number of years due to the infamous duck curve. With so much solar generation in the Golden State, the peak period on the electric grid is in the early evening as solar generation goes down with the sun and energy demand goes up with people returning home from work.
To adjust to this new reality, California investor owned utilities (IOUs) are adjusting their TOU periods to create price signals to reduce electric usage during the late afternoon and early evening. Below is a snapshot of the new TOU periods that went into effect in Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) service territories earlier this year:
This is generally terrific news for you if you operate a commercial building. Most commercial buildings operate during business hours and are ramping down usage as the more expensive on peak 4pm-9pm period approaches. This means higher proportions of energy usage will be during less costly TOU periods.
Commercial building demand charges will also benefit from the shifting TOU periods. A higher proportion of demand charges will be allocated to the new, later on-peak period, and a lower proportion will be allocated to a building’s maximum demand reading. Most commercial buildings set their peak demand in the early to mid afternoon at the hottest times of the day, meaning lots of savings for those buildings that can reduce use by 4pm.
Taking a Gridium customer office building on SCE’s TOU-8-D-S rate tariff as an example, their maximum kW and maximum on-peak kW readings increased by 22% and 0%, respectively, on their June 2019 bill compared to a year prior. Even with this 22% increase in their maximum kW reading, their total demand charge in dollars for the bill period only went up by 6%.
While SCE and SDG&E have already rolled out their new TOU periods, Pacific Gas & Electric (PG&E) will be adjusting their TOU periods effective November 2020 with the option for customers to enroll early beginning in late 2019.
If you are a Gridium customer with buildings in PG&E territory, we will model the new TOU periods when the new rates come out to see if it is financially advantageous to enroll early.
So what should you do?
Your building should coast into the afternoon by getting ahead of your building’s cooling demands. The same demand strategies you already use, like early starts and staging equipment, will help reduce usage during the new TOU period. This will be especially true in San Francisco, where chillers frequently come on full bore in the afternoon to transition from the marine layer to the sunshine.
Rates will not be going down for any California IOU customer anytime soon. However, commercial office buildings–with operators that understand these new utility economics and who can see when and how to use energy–just received a win.