California’s rising adoption of solar power has fundamentally altered traditional dynamics on its electric grid. In response, the state’s electricity providers are moving ahead with rate changes that will have a significant impact on electricity costs and the financial performance of behind-the-meter solar photovoltaics (PV) on commercial and industrial facilities in the state.
Since delivering electricity during periods of high demand is cost-intensive, utilities in California have long implemented time-of-use (TOU) rates that followed the grid’s traditional load curve — which ramped in the morning, peaked in the mid-day hours, and gradually decreased in the afternoon into the evening. Higher rates were applied during “on-peak” and “part peak” hours to accommodate the cost of the mid-day peak, while lower rates were applied during “off-peak” hours at night and in the early morning.
The rapid growth of solar in the state’s generation mix has upended the traditional load curve. On a day-to-day basis, solar power production rises through the morning hours and peaks around noon before tailing off in the late afternoon/early evening hours. At scale, this reduces the demand for natural gas in the mid-day hours. However, as solar power diminishes in the late afternoon, utilities experience a spike in demand for power from traditional sources from the late afternoon and into the early evening — a trend which has been referred to as the “duck curve” since a report by the California Independent System Operator (CAISO) publicized the graphic below:
The duck curve represents a challenge to the grid for multiple reasons:
- Lost revenue: The decline in mid-day demand has eaten into a strong source of revenue for natural gas generators, while an abundance of solar power has lowered electricity prices across the board — occasionally resulting in negative prices.
- Higher costs: Supplying the demand spike in the mid-afternoon/early evening hours requires the use of natural gas peaker plants, which are expensive to run.
Traditionally, TOU rates accounted for the costs to meet the daily peak in demand. The more electricity customers used during on-peak hours, the more money they spent on TOU rates. Now that the peak in demand has shifted to a later period in the day, California’s utilities are adapting their TOU rate schedules accordingly. San Diego Gas & Electric (SDG&E) shifted on-peak hours for its summer season to 4 p.m.-9 p.m., from its previous schedule of 11 a.m.-6 p.m. Pacific Gas & Electric (PG&E) and Southern California Edison (SCE) are expected to implement the same schedule for on-peak hours in 2019.
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