If you’re a business or a non-profit, your utility rate can be a crucial factor in your overall annual savings from installing solar. Now, thanks to a recent settlement between solar advocates and the Southern California Edison (SCE) utility that should be finalized by January 2015, commercial businesses and non-profits that go solar in SCE territory will once again be able to select the financially advantageous “Option R” Time of Use (TOU) rate that has been limited.

California’s SCE Utility Option R Rate Returns for 25% More Solar Savings

If you’re a business or a non-profit, your utility rate can be a crucial factor in your overall annual savings from installing solar. Now, thanks to a recent settlement between solar advocates and the Southern California Edison (SCE) utility that should be finalized by January 2015, commercial businesses and non-profits that go solar in SCE territory will once again be able to select the financially advantageous “Option R” Time of Use (TOU) rate that has been limited.

12/18/Update: As expected, the California Public Utilities Commission has approved a settlement with solar advocates to increase the cap on its Option R rate from 150 megawatts (MW) to 400 MW, allowing more medium and large commercial and industrial customers to go solar. Below, we’ve described two examples that show how the Option R rate significantly increase the ROI of going solar in the SCE utility territory.

What’s Option R?

Option R is an alternative to SCE’s “Option B” TOU rate, which could still reduce commercial electricity costs by installing solar panels, but … the Option B rate did not affect demand charges, a significant portion of commercial and industrial electric bills. The reintroduction of Option R would simplify SCE’s rate structures so that demand charges are reduced, and as a result, it can increase annual solar savings by around 25% over the Option B rate.

Before we get into a couple of examples, let’s get onto the same utility bill page. Your non-residential SCE utility rate bill is broken up into several components:

Service Charges: These are fixed charges and are not affected by going solar, no matter which rate your operations manager chooses.

Energy Charges: This portion of your bill is based on the amount of energy that you actually use from the utility and time of day that you use it. Peak daytime rates are higher than off-peak evening and weekend rates. Additionally, summer rates are higher than fall, winter and spring rates. (This is why Option B could be complicated.)

Demand Charges: We’ve discussed demand charges in a separate blog post, but this is essentially a charge for using a short surge of energy during certain times of the day. For example, a demand charge would be assessed for when turning on machinery or air conditioning. The amount you’re charged for this surge depends on the time of day and the season.

With the expected revised Option R, the demand charge seasonal rates and peak time rates are consolidated into a single relatively low rate, significantly reducing that portion of the bill. Option R’s energy charges are increased slightly compared to the Option B rate, but the decline in demand charges more than makes up for that slight increase.

Let’s go through two examples and see how much Option R can increase savings over the old Option B rate for a Large Retail Business and for a House of Worship, two types of SCE customers that use electricity at different times of the day.

Note: Because demand charges are calculated over a brief period of time and solar production can vary by the time of day, cloud cover, and other factors, solar panels may or may not offset demand charges when, for example, an air conditioner unit turns on at 10 am in the morning. Because of that unknown, the case studies below are worst-case scenarios and will assume that no demand reduction is taking place by solar. Consequently, actual savings may be even greater than these conservative examples. 

Case Study #1: Large Retail Business Going Solar in SCE Territory

You’re a large retail store with heavy lighting and air conditioning being used during peak (expensive) times of the day. After REC’s analysis of your current SCE bill and usage profile, we determine that you would need a 250 kW solar system to optimally reduce your bill.

rec_solar_californias-sce-utility

Before installing solar, your annual SCE electric bill looked something like this:

Large 50,000 Sq. Ft. Retail Store, Southern California Edison, TOU, GS-2 rate, Before Solar
Annual Service Charges: $3,190
Annual Demand Charges: $30,831
Annual Energy Charges: $41,986
Total Annual Bill Before Solar: $76,006

After you install a 250 kW solar system and used Option B, the numbers get better, but those demand charges are still pretty high:

Large 50,000 Sq. Ft. Retail Store After Solar Rate with Option B
Annual Service Charges: $3,190
Annual Demand Charges: $30,830
Annual Energy Charges: $3,588
Total Annual Bill: $37,607
Annual Reduction with Solar 51%
   

As we can see, the demand charges and service charges pretty much stay the same, and the real savings come from reducing your energy costs from solar. Now let’s switch to the Option R rate:

Large 50,000 Sq. Ft. Retail Store After Solar Rate with Option R
Annual Service Charges: $3,190
Annual Demand Charges: $10,789
Annual Energy Charges: $5,451
Total Annual Bill: $19,430
Annual Reduction with Solar 74%

So, yes, the annual energy charges have slightly increased from Option B, but look at the dramatic reduction in the demand charges! Clearly, Option R is the best rate to choose to go solar in this type of heavy daytime usage business. In fact, Option R increased annual savings with solar by an additional 23%!

Case Study #2: House of Worship Going Solar in SCE Territory

For non-profit houses of worship, such as churches, synagogues, and temples, the energy usage profile is quite different from the large retail store. Here, energy usage spikes more on the weekends and during early morning and evening services. Nevertheless, the Option R rate is still the most cost-effective rate and is a significant improvement over Option B.

Let’s take a look at a House of Worship scenario where a 100 kW solar system is recommended.

25,000 Sq. Ft. House of Worship,  Southern California Edison, TOU, GS-2 rate, Before Solar
Annual Service Charges: $3,190
Annual Demand Charges: $18,785
Annual Energy Charges: $17,099
Total Annual Bill Before Solar: $39,073

Now let’s see what happens after solar and Option B rate are applied:

25,000 Sq. Ft. House of Worship After Solar with Option B
Annual Service Charges: $3,190
Annual Demand Charges: $18,789
Annual Energy Charges: $1,739
Total Annual Bill: $23,718
Annual Reduction with Solar 39%

39% savings is not too shabby, but let’s see how Option R reduces demand charges even more:

25,000 Sq. Ft. House of Worship After Solar with Option R
Annual Service Charges: $3,190
Annual Demand Charges: $8,072
Annual Energy Charges: $1,920
Total Annual Bill: $13,181
Annual Reduction with Solar 66%

Once again, we see how demand charges have been significantly reduced under Option R, while energy charges have gone up only slightly. In terms of overall savings, solar with Option R produces significantly more annual savings. Take a look:

rec_solar_californias-sce-utility-2

In both of our above solar case studies, SCE’s Option R rate with solar creates dramatically higher savings and hence, a faster payback.

Option R is expected to be available in January 2015 for medium and large-scale solar customers with demands between 20 kW and 4 MW in SCE rate classes GS-2, GS-3 and TOU-8.

How much would your business or non-profit save with solar and switching to Option R? Contact an REC Solar expert for a comprehensive solar evaluation, as well as information about new low-up front cost financing options.