Understanding Tiered Electricity Rates and How to Size Your Home Solar Energy System


Have you heard someone mention tiered electricity rates and wondered what on earth they are talking about? Well read on and we will tell you all you need to know to understand what they are and how they work. First of all not every utility uses a tiered rate system in fact, California is one of the few states that has “inverted tier rates,” also called baseline rates. So let’s take PG&E for example, they operate on a five tier system that ranges in price from $0.12 to $0.50. Under this rate system, if you are a PG&E customer you are charged more if you use electricity above a minimum amount.  This minimum amount is called the baseline (more information on how baselines are set can be found here).

If you only use a small amount of electricity in your home, you may be able to get all your energy needs at the lowest, tier 1 rate. However, as your energy use rises, you will move into tier 2 rates then tier 3, etc. You can see for yourself, take a look at your energy bill and see how much you are being charged over and above your baseline level. I have attached a copy of my bill to show you where to look. As you can see I used all the baseline energy for February and also used 40 Kwh in tier 2 for which I was charged a higher rate.

 

So what does this have to do with installing a solar energy system?
When you install a solar system and start generating your own electricity the utility company will thank you by eliminating the top tiers (Tier 4 & 5) from you energy bill first. So if you are smart and want to achieve the fastest payback from your home solar energy system you should size your systems such that your solar energy system only produces the energy you use over and above the tier 1 and tier 2 levels. If in the future the rates for tier 1 and tier 2 increase you can always add a panel or two to increase your solar energy output.

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