The Economics of Residential Solar Panels: Comparing Tiered and Time of Use Plans

Abstract

This case study uses data from a Southern California Edison residential customer on a grandfathered tiered rate plan to investigate 1) whether it is economically beneficial for the customer to switch from a tiered-rate plan to a Time-of-Use (TOU) plan, 2) whether going solar now makes financial sense for new solar customers, 3) what level of usage offset (the percentage of the customer’s annual electricity consumption that is provided by the solar panels) would result in the maximum financial benefit for the customer under each of the many TOU plans, and 4) whether solar customers on TOU plans can save substantially by time shifting small amounts of electricity usage from peak periods to off peak periods. We find that, by and large, there is no compelling reason for solar customers on the grandfathered tiered rate plans to switch to TOU plans. Solar panels continue to be an excellent investment for customers thinking of going solar, and the ideal usage offset for this customer (and others on TOU rate plans) is in the 103% - 107% range. That is, savings are maximized when solar panels produce 103% - 107% of the customers’ annual electricity consumption. Finally, we find that shifting a modest amount of consumption from peak rate hours to off peak hours during the two months of maximum electricity consumption will result in significant savings.