Time of Use Tariffs: Where Battery Savings Actually Come From

If you are trying to work out whether solar and a battery make financial sense, one number matters more than the brand of your panels, the chemistry of your battery or the efficiency of your inverter. It is the gap between what you pay at peak times and what you pay off peak. Get that number and most of the decision follows.

What a time of use tariff is

A flat tariff charges the same rate for every kilowatt hour, whenever you use it. A time of use (TOU) tariff splits the day into periods and charges differently for each. A typical structure looks like this:

• Peak. Usually late afternoon into evening, when everyone gets home, cooks, and turns things on while solar output is falling. The most expensive window.
• Shoulder. Mid range pricing either side of the peak.
• Off peak. Overnight, and increasingly the middle of the day in regions with a lot of solar on the grid. The cheapest window.

For context on scale, the average US residential electricity price has been running in the region of 17 to 19 cents per kilowatt hour.[1] That is an average. On a TOU tariff your peak rate can sit far above it while your off peak rate sits well below.

A flat tariff makes a battery hard to justify. A steep time of use tariff can make the same battery an obvious buy.

Why this decides the battery question

A home battery does not create energy. It moves energy through time. Every kilowatt hour it shifts earns you the difference between the rate you avoided paying and the rate you paid to fill it. That difference is the entire financial product.

So the arithmetic is simple:

Worked example: a steep tariff

Take a 10 kWh battery costing 8,000 dollars installed, on a tariff with a 40 cent peak and a 12 cent off peak, shifting 8 kWh on a typical day:

• Spread: 40c − 12c = 28 cents per kWh
• Daily: 8 × 0.28 = 2.24 dollars
• Annual: about 818 dollars
• Payback: 8,000 ÷ 818 = about 9.8 years

Against a typical 10 to 15 year warranty, that works.

The same battery on a flat tariff

Now put the identical hardware on a flat 18 cent tariff with a 5 cent effective spread from charging on surplus solar:

• Daily: 8 × 0.05 = 0.40 dollars
• Annual: about 146 dollars
• Payback: 8,000 ÷ 146 = about 55 years

Same battery, same installer, same sunshine. The tariff alone moved payback from under a decade to longer than the equipment will ever last. This is why we are sceptical of any national "average battery payback" figure. There is no such thing.

The export rate matters just as much

The second number to find is what your utility pays for electricity you export. Under generous full retail net metering, the grid already behaves like a free, infinitely large battery, and buying a physical one saves you comparatively little. As utilities move to lower export rates, the value of keeping your own solar rather than selling it rises, and storage becomes more attractive. A falling export rate is bad news for your bill and good news for your battery's business case.

Where software comes in

Capturing that spread every single day is a scheduling problem. Your control system has to decide, each afternoon, how full the battery should be going into the peak, balancing tomorrow's solar forecast against tonight's demand. Do it badly and you either enter the peak half empty or you fill from the grid at the wrong moment. This is why battery control software has a real effect on payback, and why it is worth asking whether a system supports your specific tariff. We cover the control layer in more detail in our technology overview.

How to run your own numbers

1. Find your tariff sheet. Note the peak rate, the off peak rate and the hours each applies.
2. Note the export rate your utility pays.
3. Look at your bill for how many kWh you actually use during peak hours. That caps how much a battery can shift.
4. Apply the formula above using a real installed quote, not a pack price.
5. Check whether switching tariff is even an option. Some utilities let you choose, and moving to TOU only pays if you can genuinely shift your usage.

Our take

• Steep peak to off peak spread: a battery is likely worth serious investigation.
• Flat tariff and generous net metering: solar still makes sense, storage mostly buys you backup rather than savings.
• Falling export rates in your area: the case for storage is improving, and battery hardware costs are still coming down.[2]

Back to Technology