Time-of-use pricing: Will it undermine solar domestic hot water programs?

Smart meters and time-of-use pricing are always well-read stories because there’s true division within the general public on whether smart meters are consumer-friendly gadgets that encourage conservation or utility-friendly devices that make it easier to gouge consumers. See my story in the Toronto Star from Friday. My take is that electricity prices are going up whether we get smart meters or not, and that smart meters — and the applications they enable — offer households a way to shift and even lower their electricity use to buffer the impact of rising prices. The mistake — and again, just my view — is that smart meters have been improperly marketed to consumers as some kind of sexy wonder tool that will help them lower their bills. Instead, utilities should have downplayed the introduction and simply moved ahead with their installation as part of a less exciting grid modernization play — equivalent to a telecom company upgrading from analog to digital networks so that, down the road, new services can be offered to customers. Customers don’t care about the bandwidth, they just care about the handsets and what they can do.

By positioning smart meters as more of an infrastructure play the cost of deployment can be simply incorporated into annual capital budgets and households are more resigned to the fact that getting the new device is mandatory. Let’s face it, initially smart meters are about helping utilities manage their networks better — i.e. they can pinpoint problems and do more detailed analysis of individual household, neighbourhood, and community power consumption, improving system planning and maintenance operations and preparing utilities for increased distributed generation in their service territories.

By making this seem like some gift to consumers, as has been done, utilities open themselves up to consumers expecting certain results and wanting the option of getting or not getting the smart meter. I witness this every day in the e-mails I get and conversations I have with disgruntled Toronto Hydro customers. Later, once the smart meter infrastructure is in place, the utility can begin deploying the in-home monitors and Web applications that allow customers, on an optional basis, to better take advantage of time-of-use pricing and demand-response programs. This, of course, needs to be preceded by gradual price hikes that are blamed on the rising cost of new generation and grid renewal so that consumers more clearly see smart-meter-enabled applications as a way to offset those inevitable increases (which are simply the reality of our times, not the cause of smart meters).

So how, as my subject line hints, does time-of-use pricing potentially undermine programs that promote the uptake of domestic solar hot-water systems? I have one of these systems on my roof, and I like it. It works well. I’m not sure I use enough water every month to justify the payback (disclosure: I’m part of a pilot program, so when I say “payback” I’m referring to the typical installed cost of these systems), but it’s nice to know the hot water we use for our dishwasher, showers, and occasionally our laundry can come from the sun, not natural gas. But here’s the problem with time-of-use pricing. If I want to run the laundry or dishwasher when the hot water in my house is completely heated by the sun, I must do it during what are typically peak times under time-of-use schedules. It means I pay double for the electricity so I can save on the natural gas. Alternatively, I can do the laundry during off-peak hours when power is cheap, but the sun is down and my water tank relies more on natural gas.

So, it seems, this is a classic case of the law of unintended consequences — two programs aimed at reducing our use of non-renewable energy that end up undermining their respective objectives. This is a good argument against mandatory time-of-use pricing. At the very least, it’s a good argument for retail electricity providers such as Direct Energy, Bullfrog Power, and others who offer fixed-rate pricing. Using green-energy retailer Bullfrog Power, for example, is a nice complement to solar thermal because you pay the same rate for green electricity at any time of the day so are not penalized for running your dishwasher or laundry machine in the afternoon on a sunny day.

14 thoughts on “Time-of-use pricing: Will it undermine solar domestic hot water programs?”

  1. Tyler,
    Your thesis rests on the assumption that “I want to run the laundry or dishwasher when the hot water in my house is completely heated by the sun.” That is not the best time to use water from a Solar Domestic Hot Water Heater (SDHW.) The best time to use hot water is right BEFORE a sunny time, because cooler water in the tank means that thermal energy will be absorbed more efficiently (you will get more BTUs from the same amount of sunlight.)

    When I last has a SHW heater (a 1980’s unit in a rental home), the tanks were large enough to store hot water for several days. Hence, the ideal time to use hot water was when the weather was forecast to be sunny for a day or two: you wanted to deplete the HW and cool the tank down when there was a coming opportunity to reheat it. And that was in the winter… in the summer we had more hot water than we could possibly use.

    For that system, since the only timing that mattered was on the scale of days, not hours, there was no conflict with TOU rates.

    Furthermore, even with a system that was not oversized like the one I had, the ideal time to use hot water would be in the morning of a sunny day. This would cool the tank down, and allow it to absorb more heat during the day.

    Air-conditioning driven peak is usually the afternoon and early evening, so there really is no conflict between SDHW and TOU that I can see.

    One more thing: some solar hot water systems can really benefit from TOU. A company in Boulder (Cool Energy coolenergyinc.com) has designed a system that uses the excess heat in the summer to generate electricity. Since this electricity is generated on peak, TOU increases the economics of the system. In essence, the thermal storage tanks have a double function: they are also storage tanks for un-generated electricity.

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  3. Tyler,

    This is a brilliant article about the often-overlooked problem of electricity v. heat. It happens with efficiency programs, too. The best energy audit looks at the whole house system, perhaps finding that significant insulation improvements would cut both heating a cooling bills. But if it’s only the electric utility doing the audit, they aren’t interested in insulation because the savings (in northern climates) are minimal for electricity.

    Thanks very much for the piece!

    -John

  4. TOU rates are clearly a rate increase. With 168 hours in a week, if you multiply a baseload of one kWh times the RPP and the equivalent of TOU rates it works out to roughly a 7% increase on all those appliances that run 24 hours a day such as your furnace, refrigerator, PRV, deep freeze or clock radio, etc. As you have pointed out, elderly people with additional electrical demands will be hit extra hard by this rate increase. Anyone with a half a brain and a calculator can see this.

    I can see these TOU rates also causing other unintended consequences. Parents with kids are not going to stay up late to do laundry after 9pm to save money. Especially if that means they will sacrifice sleep due to the need to be up early to wake children, make meals and generally get the kids ready for school in the morning. This sacrifices ‘quality time’ for couples that spend hectic days and are in need of kid-free relaxation in the evenings. This will, in then end, move chores to the weekend when rates are cheaper or force another rate increase upon the family wallet. If the chores are moved to the weekend, family fun may be sacrificed or family relations will be strained.

    Jay? Are you some kind of troglodyte that enjoys masochism? I have worked hard to provide myself the modern conveniences of life. It affords me the time to enjoy life as it passes by. Let’s not take a step backward, shall we.

    MrC

  5. Use ngas to heat water have to pay $19.75 a month all summer (6 to 8 months) no gas use.
    Bill says for billing costs. Solar panels make all the DHW needed. Cost $118.00 to 158.00 for nothing

  6. Tom’s comments above were interesting.

    MrCannuckistan: I’m sure it will amount to a rate increase. We should accept it and move on, I think. What is the alternative? To fight a rate increase? If the costs of electricity are going up then where does that get us? I think that these changes will encourage changes in products that will help us deal with them. Also, it’s expensive to subsidize bad habits simply because there’s no will to sustain hardship for a few weeks in order to form new ones.

    Jay is onto something, too… if you handwash your dishes then you may find yourself making fewer dirty dishes or cooking with fewer pots (I know because I do). And what is wrong with cold water washing? It is not quite as good as getting deep stains out of clothes, but for general washing it’s fine. Not everyone comes home with blood- and/or wine-soaked clothes at the end of the day and those that do may find it worth the money to wash in hot water 🙂

    Also, regarding laundry (but does not help for the dishwasher): if you do it on the weekend then you have all weekend to benefit from the lower rate. If you are willing to go as far as installing alternative energy sources, I’m sure you can organize your life so that the laundry is done on the weekend.

    Using Tom’s comments in combination with the above, if it makes sense to use your washing machine in the morning — before a sunny period — then this is also the ideal time from another point-of-view because it gives you the whole day to air-dry your laundry outside, which also requires an extended sunny period.

  7. Tyler,

    As Tom points out most solar hot water systems (all to my knowledge) store the heat in a tank that can be drawn from for several days. So, time of use and solar hot water are congruent (or indifferent to each other). In fact the system that we manufacture only loses about 1 deg C per day in its storage tank. On the other hand, your comment on smart meters I think is very relevant and maybe not too late for most consumers as few know about smart meters.

    Ian

  8. Tyler,

    thankyou for your amazing very well informed research.

    The headline talks about the impact on solar hot water, but I don’t see that mentioned in either the blog or the article in the Star.

    I don’t see that it would really change the solar hot water payback in any uniform way. Solar heated water will be plenty hot in the evening up till 9 pm when we are still on prime time rates. The second tank that is typical of a solar hot water system could even be used for additional electrically heated storage, topped up at night when rates are cheap, adding to the heat that might already be there from solar.

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