What Is TOU Rate Modeling? Definition & Guide

Key Takeaways

TOU rates charge different electricity prices depending on the time of day and season
Solar savings calculations must account for when energy is produced, not just how much
Peak rates (4–9 PM in many markets) are 2–4x higher than off-peak rates
Battery storage paired with TOU modeling can shift solar energy to high-value peak hours
Accurate TOU modeling requires hourly production data matched against utility rate schedules
West-facing arrays may generate higher financial returns than south-facing arrays in TOU markets

What Is TOU Rate Modeling?

TOU rate modeling is a financial analysis method that calculates solar energy savings using Time-of-Use electricity rate schedules — pricing structures where the cost per kWh varies by time of day, day of week, and season. Instead of applying a single flat rate to all solar production, TOU modeling maps hourly solar generation and building consumption against the applicable rate tier to determine the actual dollar value of each kWh produced.

This distinction matters because solar panels produce most of their energy during midday hours, which in many utility territories now fall into “off-peak” or “mid-peak” rate periods. The most expensive electricity — peak rates — often occurs in late afternoon and evening when solar production is declining. Accurate financial projections for solar customers require this time-based analysis.

In California’s NEM 3.0 framework, the value of a kWh exported at 2 PM can be worth less than one-third of a kWh exported at 6 PM. Without TOU modeling, savings projections can be off by 30–40%.

How TOU Rate Modeling Works

TOU rate modeling combines solar production simulation, load profile analysis, and utility rate schedule data:

Hourly Production Simulation

Solar design software generates an 8,760-hour annual production profile based on system size, orientation, tilt, shading, and local weather data. Each hour’s output is calculated individually.

Load Profile Integration

The building’s hourly electricity consumption pattern is overlaid. This can come from utility smart meter data (Green Button format), estimated load profiles, or building energy modeling.

Net Energy Calculation

For each hour, the model determines whether the building is a net consumer (importing from grid) or net exporter (sending surplus to grid). Self-consumed solar offsets purchases at the import rate; exports receive the applicable export credit rate.

Rate Schedule Application

Each hour’s net import or export is valued at the correct TOU rate tier — peak, mid-peak, or off-peak — based on the utility’s published schedule. Seasonal rate variations are also applied.

Annual Savings Aggregation

The 8,760 hourly savings are summed to produce annual savings, which feed into ROI, payback period, and lifetime financial projections presented in the customer proposal.

TOU Savings Formula

Hourly Savings = (Self-Consumed kWh × Import Rate[hour]) + (Exported kWh × Export Credit[hour])

TOU Rate Structure Types

Utilities across the U.S. and internationally use several TOU rate structures. Understanding the differences is critical for accurate modeling:

Simple

Two-Period TOU

Divides the day into peak and off-peak periods only. Common in smaller utilities and emerging TOU markets. Easier to model but less reflective of actual grid cost dynamics.

Common

Three-Period TOU

Adds a mid-peak tier between peak and off-peak. Most major U.S. utilities use this structure. Peak typically runs 4–9 PM, mid-peak covers morning and early afternoon, off-peak is overnight.

Advanced

Seasonal TOU

Different rate tiers and time windows for summer vs. winter. Summer peak rates can be 50–100% higher than winter peaks. Seasonal modeling captures the full annual savings picture.

Dynamic

Real-Time Pricing

Rates change hourly or sub-hourly based on wholesale market conditions. Most complex to model. Becoming more common for commercial customers and in deregulated markets.

Designer’s Note

When using solar software for TOU modeling, always verify that the rate schedule in the tool matches the customer’s actual utility plan — not the utility’s default plan. Many customers are on legacy plans or have opted into specific TOU schedules that differ from the standard offering.

Key Metrics in TOU Analysis

Metric	Definition	Why It Matters
Peak-to-Off-Peak Ratio	Peak rate ÷ off-peak rate	Higher ratios increase the value of peak-hour self-consumption and battery arbitrage
Solar Peak Overlap	% of solar production during peak hours	Low overlap (common when peak = evening) reduces solar’s direct peak-rate offset
Self-Consumption Value	Weighted average rate of self-consumed kWh	Higher than export credit in virtually all TOU markets
Export Credit Value	Weighted average credit for exported kWh	Often the off-peak or avoided-cost rate — significantly below retail
Battery Arbitrage Spread	Peak rate − charging cost	Determines the financial viability of battery storage for rate arbitrage
Demand Charge Reduction	kW peak demand reduction from solar	Commercial TOU plans often include demand charges that solar can partially offset

Battery Arbitrage Value

Daily Arbitrage = Battery Capacity (kWh) × (Peak Rate − Off-Peak Rate) × Round-Trip Efficiency

Practical Guidance

TOU rate modeling affects system design, storage decisions, and customer proposals. Here’s role-specific guidance:

Optimize for value, not volume. In TOU markets, orient panels to maximize production during higher-rate periods. West-facing arrays produce less total energy but more peak-hour energy.
Model battery scenarios. Always compare solar-only and solar-plus-storage projections. In markets with steep peak-to-off-peak ratios (3:1 or higher), batteries often improve ROI even at current prices.
Use actual load data. Generic load profiles can misrepresent peak-hour consumption by 20–30%. Request 12 months of interval (15-minute or hourly) meter data from the customer or utility.
Account for rate escalation. Model future savings using projected rate increases. Utilities frequently adjust TOU tier boundaries and rates — the financial modeling tool should handle escalation scenarios.

Educate homeowners on TOU behavior. After installation, customers on TOU plans should shift discretionary loads (EV charging, laundry, dishwasher) to off-peak hours to maximize savings.
Configure battery dispatch correctly. If battery storage is included, ensure the battery management system is programmed for TOU arbitrage — charging during solar/off-peak hours and discharging during peak periods.
Verify meter programming. After interconnection, confirm that the utility has enrolled the customer on the correct TOU plan. Incorrect meter assignment can negate the financial projections.
Document rate plan in handoff. Include the specific TOU plan name, effective date, and any rate-lock provisions in the customer handoff documentation.

Show time-based savings breakdowns. Present monthly savings by TOU tier so customers understand where their savings come from. This builds trust and sets accurate expectations.
Use TOU as a battery upsell. When peak-to-off-peak ratios exceed 2.5:1, battery storage frequently makes financial sense. Present the incremental ROI of adding storage to the solar proposal.
Compare rate plan options. Many utilities offer multiple TOU plans. Model savings under each available plan and recommend the optimal one — customers appreciate this level of analysis.
Address rate change risk. Customers worry about utilities changing rates after they install solar. Explain grandfathering provisions and show savings projections under multiple rate scenarios.

Automate TOU Rate Modeling in Every Proposal

SurgePV’s financial engine applies hourly TOU rates to production simulations automatically — accurate savings projections without spreadsheet work.

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Real-World Examples

Residential: California NEM 3.0 with TOU

A homeowner in San Diego on SDG&E’s TOU-DR plan pays $0.07/kWh off-peak (midnight–6 AM), $0.45/kWh mid-peak, and $0.65/kWh peak (4–9 PM). A 7 kW south-facing system produces 11,200 kWh/year but generates most output during mid-peak hours. TOU modeling shows annual savings of $1,850. Adding a 13.5 kWh battery to shift 8 kWh/day from midday to peak hours increases annual savings to $2,640 — a $790/year improvement that pays for the battery within 9 years.

Commercial: Manufacturing Facility with Demand Charges

A manufacturing plant in Texas on a commercial TOU plan with demand charges pays $0.04/kWh off-peak, $0.09/kWh on-peak, plus $12/kW monthly demand charge. A 200 kW rooftop system reduces on-peak purchases by 680 kWh/day and trims peak demand by 45 kW. TOU modeling shows the demand charge reduction ($540/month) contributes nearly as much savings as the energy offset ($720/month), totaling $15,120/year.

Residential: Arizona with Evening Peak

A Phoenix homeowner on APS’s Saver Choice Max plan faces peak rates from 3–8 PM (summer) at $0.24/kWh and super-off-peak overnight at $0.06/kWh. A 10 kW system with 60% west-facing, 40% south-facing split maximizes late-afternoon production. TOU modeling shows this split orientation generates $320/year more savings than a purely south-facing array, despite producing 4% less total energy.

Impact on System Design

TOU rate structures fundamentally change optimal design choices compared to flat-rate markets:

Design Decision	Flat Rate	TOU Rate
Optimal Orientation	Due south (max kWh)	Southwest to west (max peak-hour value)
System Sizing	Match annual consumption	Size to offset highest-value consumption hours
Battery Storage	Backup power only	Financial arbitrage + backup
Proposal Metrics	kWh offset %	$/year savings by rate tier
Load Shifting Advice	Not applicable	Move loads to off-peak for additional savings

Pro Tip

Always run two financial scenarios for TOU customers: one with current rates and one with rates escalated at the utility’s historical average (typically 3–5%/year). Peak rates tend to escalate faster than off-peak rates, which means solar-plus-storage savings grow disproportionately over time.

Frequently Asked Questions

What is TOU rate modeling for solar?

TOU rate modeling is the process of calculating solar energy savings using Time-of-Use electricity pricing, where the value of each kWh depends on when it’s generated and consumed. The model maps hourly solar production against the utility’s rate tiers — peak, mid-peak, and off-peak — to determine actual dollar savings rather than using a single average rate.

Do TOU rates make solar less valuable?

It depends on the market. In utilities where peak hours align with solar production (midday peaks), TOU rates can increase solar value. But in markets with evening peak periods (4–9 PM), solar alone is less valuable because most production occurs during lower-rate hours. However, adding battery storage to shift energy into peak hours can restore or even increase the financial benefit compared to flat-rate plans.

Should I face solar panels west for TOU savings?

In markets with evening peak rates (typically 4–9 PM), west or southwest-facing arrays can generate 5–15% more financial savings than south-facing arrays, despite producing less total energy. The optimal orientation depends on your specific TOU rate structure and the peak-to-off-peak price ratio. Use solar design software with TOU modeling to compare orientations for each customer’s actual rate plan.

How does battery storage work with TOU rates?

Battery storage enables TOU arbitrage — charging from solar during low-rate midday hours and discharging during expensive peak hours. For example, if off-peak electricity costs $0.08/kWh and peak costs $0.45/kWh, each kWh shifted by the battery saves approximately $0.33 (after accounting for round-trip efficiency losses). Over a year, a 10 kWh battery performing daily arbitrage can save $800–$1,200 in high-ratio TOU markets.