Time-of-use metering is a cutting-edge approach to measuring and billing a utility customer’s energy consumption, taking into account the specific period in which the energy is utilized. The rates charged by utility companies tend to increase during peak hours when electricity usage is at its highest. These Time-of-Use (TOU) rates may differ depending on the region and utility provider.
Concept of Time-of-use
The Time-of-Use (TOU) plan is divided into three primary categories, determined by both the time of day and the level of electricity consumption. The categories include peak, off-peak, and mid-peak (also called shoulder time).
1. Peak Rates
It refers to the specific times during the day when the demand for energy reaches its highest point. Typically, in the late afternoon and evening, as people return home from work, they begin to utilize their appliances with increased intensity. At this time, local utility companies apply the highest tariff for electricity consumption.
2. Off-Peak Rates
These occur during the time of day when the demand for energy is at its lowest. Typically, from late morning to early afternoon, the energy demand and peak load decrease considerably as there are significantly fewer people at home.
Also known as shoulder time, they refer to those specific hours of the day when energy demand is gradually increasing or decreasing. The energy demand fluctuates throughout the day according to different household activities.
Also See: What is Real-Time Pricing (RTP)?
Working Principle of TOU
Time-of-use (TOU) rates are a type of utility rate structure that changes the price of electricity based on the time of day. Frequently, time-varying rates, also known as rate structures, tend to follow a familiar pattern.
- During off-peak hours, when electricity production costs and demand are low, the electricity usage rate is significantly reduced.
- During certain periods, particularly on hot summer afternoons, when electricity generation costs are high due to peak demand, the electricity rate increases significantly.
- Seasonal variations, weekdays versus weekends and holidays, and multiple periods throughout the day are determining factors that contribute to the varying time-of-use rates.
Also Read: What is Levelised Cost of Energy (LCOE)?
What is the Need for Time-Of-Use Rates?
Time-of-use rates aim to align the costs electricity consumers pay with the actual cost of generating electricity. Currently, the majority of utility companies only revise their residential electricity rates once or twice annually. The rate, which is measured in dollars or cents per kilowatt hour ($/kWh), aims to encompass the complete cost of producing the electricity that consumers utilize.
This is where Time-of-Use (TOU) Rates provide transparency by adjusting the electricity rate based on the time of day, week, or month. This allows you to have a clearer understanding of the actual cost of the electricity you consume. By knowing when electricity costs are higher or lower, you can reduce your total electric bill by adjusting your electricity usage.