Across the United States, electrical utility providers are increasingly adopting variable rate systems designed to reduce peak electrical demand and the higher costs associated with it. One of the most widely used approaches is Time of Use pricing, a rate structure that charges different electricity prices depending on when energy is consumed.
As Time of Use pricing becomes more common, Thermal Energy Storage systems are emerging as an effective way for buildings to shift energy use to lower-cost periods and better manage long-term operating costs.
What Is Time of Use Pricing?
Traditional electricity rates typically consist of a monthly fixed service charge and a single per kilowatt-hour price, regardless of when electricity is used. Under Time of Use (TOU) pricing, the cost of electricity changes throughout the day based on demand on the electrical grid.
In simple terms, TOU pricing works by:
- Charging higher electricity rates during periods of peak demand
- Offering lower rates during off-peak hours when energy supply is greater
- Encouraging customers to shift flexible energy use to lower-cost time periods
When customers adjust usage accordingly, they can reduce their energy bills while utilities benefit from lower peak demand and improved grid efficiency.
Why Utilities Are Moving Toward Time of Use Rates
TOU pricing helps utilities better manage the strain placed on electrical infrastructure during periods of high demand. By shifting energy consumption to off-peak hours, utilities can reduce the total peak load they must serve.
From both the utility and customer perspective, the rates support:
- Lower overall system costs during peak demand periods
- More efficient use of available generation capacity
- Greater cost transparency tied to real-time supply and demand
For customers, this creates opportunities to lower energy expenses without reducing comfort or operational performance.
Time of Use Pricing in California
California has played a leading role in the adoption of TOU pricing. In 2015, following several successful pilot programs, including a landmark 2012 to 2014 Sacramento Municipal Utility District TOU pilot, the California Public Utilities Commission directed the state’s three investor-owned utilities to transition customers to default rates.
Under this model, customers are automatically enrolled in TOU pricing unless they choose to opt out.
Utility Rollout Timeline
The transition to default TOU rates occurred on the following schedule:
San Diego Gas and Electric began transitioning customers in March 2019
Southern California Edison and Pacific Gas and Electric were given until October 2020 to update billing systems
Sacramento Municipal Utility District began a system-wide rollout on October 1, 2019
A Nationwide Shift Toward Time of Use Pricing
The move toward this pricing extends well beyond California. Investor-owned utilities, public utility districts, and state utility commissions across the country are piloting and implementing similar rate structures.
As TOU pricing expands nationwide, customers have increasing incentives to shift energy-intensive activities to off-peak hours. This trend has accelerated interest in energy storage solutions that can support load shifting.
How Thermal Energy Storage Works with Pricing
Thermal Energy Storage, often referred to as TES, functions as a thermal battery that stores cooling capacity rather than electrical energy.
A typical Thermal Energy Storage system operates as follows:
- Chilled water is produced during evening and nighttime off-peak hours
- Mechanical refrigeration and evaporative chillers operate when electricity rates are lowest
- Chilled water is stored in direct-bury fiberglass tanks
- Stored thermal energy is used to meet daytime cooling demands during peak rate periods
This process shifts heating, ventilation, and air conditioning system operation away from expensive on-peak periods and into lower-cost off-peak TOU rate windows.
Thermal Energy Storage Applications in Buildings
Thermal Energy Storage systems can be applied in both existing buildings and new construction projects.
In existing facilities, TES can be integrated with current climate control systems, using existing mechanical and evaporative chiller infrastructure to reduce peak electrical demand and operating costs.
In new construction, Thermal Energy Storage systems may be designed to:
- Handle up to 100 percent of a building’s cooling load
- Act as a reserve or supplemental cooling system
- Support smaller, more cost-effective heating, ventilation, and air conditioning system designs
DARCO Experience with Thermal Energy Storage Infrastructure
DARCO brings more than 30 years of experience in the design and manufacturing of direct-bury fiberglass water tanks. The company has worked with Thermal Energy Storage engineering firms in the research and development of systems that support load shifting under TOU electricity rate structures.
Learn How Thermal Energy Storage Can Support Your Project
If your utility provider uses or is moving toward TOU pricing, Thermal Energy Storage could be a smart way to manage peak energy demand and control long-term operating costs.
Have questions or want to explore whether this approach makes sense for your project? Reach out to DARCO and start the conversation. We’re happy to talk through your goals and how stored thermal energy might fit.
Resources:
1 https://www.smartgrid.gov/files/SMUD-CBS_Final_Evaluation_Submitted_DOE_9_9_2014.pdf
