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12.11.20 - PAYS® Time Varying/Time of Use Rates

A recent study about time varying rates got us thinking about the impacts of time varying rates (TVR), sometimes called time of use (TOU) rates, and PAYS.

Time varying rates are higher during peak and lower off peak to encourage people to conserve. The programs work best when the peak rate is significantly higher than the previous flat rate and from off peak rate. Programs can be price only or technology mediated with a wifi thermostat, water heater controller, or in theory, other smart devices like refrigerators. Results have varied widely (see figure below) especially early on when key factors weren’t yet appreciated.

Optional TVRs and TOUs are becoming more widely adopted and some utilities are even moving entirely to TOU, so understanding their impact on PAYS is important. In the study, LMI customers saved 4.4% to 9.6% on their energy bills.

So let’s look at two scenarios:

  1. Customers considering a PAYS upgrade were given the option of also switching to a TVR/TOU structured similar to the one’s in these studies at the same time as the upgrade

  2. The utility implemented a TVR/TOU before the customer was offered a PAYS upgrade

In the first case, the TVR/TOU could make an important difference. Since PAYS uses energy savings to payback the cost of the utility’s investment in energy efficiency upgrades to the home, the extent of the possible upgrades largely mirror the size of the savings. This is why program operators prioritize high energy using households with high energy intensity. As the homes with the greatest savings potential, they are the most likely to be able to generate a stream of savings sufficient to fully cover the cost of a deep energy upgrade (attic insulation, duct sealing, air sealing, lighting, and a new high efficiency air source heat pump).

PAYS upgrades typically generate savings of 20-35% and sometimes much more. As can be seen in the table below, increasing those savings by 5% or 10% after the post-upgrade would mean that more people would have a no-cost offer with zero-copay.

Homes with less saving potential often end up with a copay to get the full HVAC upgrade, and even when the price is a bargain relative to the full cost of a replacement the population most in need cannot afford a $1000 or higher copay and so they opt out or just take a no-cost weatherization upgrade. So the additional savings means these people go from declining the HVAC offer and getting weatherization only to being able to accept the deeper retrofit with HVAC included.

In scenario two, where the utility implemented a TVR/TOU before the customer was offered a PAYS upgrade, many customers would have seen bill savings, which is good for them, but will lower the savings stream and total potential utility investments that savings stream can support. So the timing of when TOU is introduced could matter a lot for PAYS. How much it matters will have to wait on more sophisticated analysis because it depends on the overlap between the occupants energy use profile and the peak periods, which will vary.

For those of you not familiar with TOU rates and their impact in general, the new study should be interesting. For those with less time, here is a quick overview. The three Maryland pilots had both summer and winter peak pricing which was communicated clearly to the customer when they signed up. Here’s how BGE communicated it:

Treatment customers got “behavioral load shaping” in the form of a weekly email reminder of the timing of the peak period and tips on cut and shift loads, so the pilot is quantifying impacts of the combined effect of pricing and the information. A nice feature of this study is that they looked at the differential impact on LMI and non-LMI customers.

The net result was very good for the utility:

And also generally pretty good for the customers:

To motivate behavior change, customers “were provided with a personalized estimate of their potential savings under the TOU rate, based on their load profiles. Based on their pre-pilot consumption patterns, about two-thirds of the customers who chose to participate would have seen a decrease in their bills even without changing their behavior.”

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