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Minimizing Electric Bills with Smart Homes, Solar, and Storage
Tom Lombardo posted on April 24, 2016 |
The Smart Grid will come with varying rate plans. This analysis can help you choose the best plan fo...

# Smart Grid, Smart Home, Smart Consumer

In a previous article, I discussed ways in which the smart grid and smart home technology could impact a customer's electric service and utility bill. At the end of that article I promised to "do the math" and provide a few examples, so here it is. I examine several possible scenarios, including different rate plans, load shifting via smart appliances, and the addition of solar panels and on-site energy storage. Yeah, my spreadsheet has been busy this week!

# Assumptions

I started with a typical US home that uses roughly 1024 kWh of electricity per month. Its maximum power draw (demand) is 3.6 kW, which occurs during peak hours under normal conditions. In the load-shifting scenarios, the demand is reduced by the same percentage as the load shift.

I found a utility that offers two pricing structures: one that includes a demand charge and very low per kWh rates, and another with no demand charge but higher rates per kWh. In both cases, there were higher rates during peak hours (2PM - 7PM) and lower rates for off-peak hours.

## A Man, A Plan, With Demand

This plan charges a rate of \$18.09/kW for demand. The demand is based on the highest power draw during the billing period, so if a house draws up to 1 kW at any given time, the charge is \$18.09. If the house exceeds that, the demand charge is proportionately higher. This may be a good plan for someone who has no major electrical appliances (stove, furnace, EV quick charger, etc.), since those appliances draw a lot of power. In exchange for accepting a demand charge, the owner receives very desirable rates of \$0.0094/kWh (off-peak hours) and \$0.096/kWh (peak hours).

Assuming they use about half of their electricity during peak hours, their monthly electricity costs break down to:

 Monthly energy cost (peak) \$51.84 Monthly energy cost (off-peak) \$4.51 Monthly demand cost: \$65.12 Net cost per month \$121.48

Some smart appliances can communicate with the smart electric meter to determine the electric rate at that particular time. This helps the appliances decide whether to run right away or wait until the rates are lower. Running high-power appliances during off-peak hours is called "load shifting."

Smart Meter Image courtesy of US Department of Energy

If the same customer used smart appliances that shifted 50% of the peak use to off-peak hours, the bill would look more like this:

 Monthly energy cost (peak) \$25.92 Monthly energy cost (off-peak) \$7.05 Monthly demand cost: \$32.56 Net cost per month \$65.53

Shifting 75% of their peak load to off-peak hours:

 Monthly energy cost (peak) \$12.96 Monthly energy cost (off-peak) \$8.32 Monthly demand cost: \$16.28 Net cost per month \$37.56

So with a few smart appliances, a homeowner could cut their electric bill by 45% to 70% with just a slight impact on lifestyle. There's no change in total electric use - only a change in when the electricity is used.

## No Demand

Customers with electric appliances that draw a lot of power would be wise to choose a no-demand plan so they aren't charged for the spike in power consumption when the appliance is used. (One would expect this house to use less electricity overall, but for my analysis I wanted to compare apples to apples, so I'm going with the same total electric use. The results are somewhat scalable, so, the percentage of savings should be similar.) In exchange for not having a demand charge, the customer pays  \$0.05/kWh (off-peak) and \$0.20/kWh (peak).

Again I'm assuming they use about half of their electricity during peak hours, so the monthly electricity costs break down to:

 Monthly energy cost (peak) \$108.00 Monthly energy cost (off-peak) \$24.00 Monthly demand cost: \$0.00 Net cost per month \$132.00

If the same customer used smart appliances that shifted 50% of the peak use to off-peak hours, the bill would look more like this:

 Monthly energy cost (peak) \$54.00 Monthly energy cost (off-peak) \$37.50 Monthly demand cost: \$0.00 Net cost per month \$91.50

And with a 75% load shift:

 Monthly energy cost (peak) \$27.00 Monthly energy cost (off-peak) \$44.25 Monthly demand cost: \$0.00 Net cost per month \$71.25

All of the above scenarios involve a slight-to-moderate lifestyle change. Although the smart appliances will automate things - for example, a smart dishwasher may delay the start of a cycle so that it runs during off-peak hours - the customer may want the dishes done immediately. A smart appliance would have an override feature so the use can force it to run regardless of the electric rates, so if you waited until two hours before your dinner party to start the dishwasher, you can still have clean dishes in time.

# Can Solar and Storage Help?

Since peak rate hours are in the late afternoon to early evening, and peak sun hours occur in the late morning and early afternoon, it's possible to use solar energy during peak hours, which could make the peak electric rate irrelevant. To account for cloudy days, let's add a little battery storage as well.

Image: US Department of Energy

This scenario uses the same house but adds a 5 kW photovoltaic array and an 8 kWh battery bank. Solar calculations are based on an average of 4.5 peak sun hours (PSH) per day - typical for the northern US -  with the array facing due south and tilted to maximize energy production. Solar energy is used on-site; whatever isn't consumed immediately gets stored in the batteries. This is based on the assumption that net-metering - selling excess solar electricity to the grid - will disappear. In reality, net-metering is likely to remain, but instead of the customer selling electricity to the grid at retail prices, they'll sell at much lower wholesale prices. So you can consider my calculations to be a worst-case analysis.

Tesla Powerwall Image courtesy of Tesla

The PV/battery combination can deliver high bursts of power. One commercially available battery bank can deliver a continuous 4 kW for two hours, which exceeds the peak power demand of a typical home. But even though the customer is providing much of their own electricity, as long as they purchase some energy from the grid, they'll pay for at least the first kW of demand (if they're on a demand plan.)

## Solar + Storage with Demand

Here's the monthly electric cost for a house that doesn't use load shifting, but includes a 5 kW solar array and an 8 kWh battery:

 Monthly energy cost (peak) \$0.00 Monthly energy cost (off-peak) \$4.51 Monthly demand cost: \$18.09 Net cost per month \$22.60

You can see that the array/storage combination eliminates all peak time purchases as well as the overall energy draw from the grid, which reduces the bill considerably. Compared to the first demand plan above, this customer could save nearly \$100/month on their electric bill. A 5 kW array with the battery unit will cost around \$20k, so using simple payback, the hardware would have a seventeen year payback period.

On the other hand, compared to the 50% load-shifting model, the PV/battery payback period would increase to 24 years. Even though solar panels typically have a 20-25 year warranty, most will easily outlive that period and continue producing power well into their 40s. The inverter and batteries, however, will need replacement every ten years or so.

Remember that my analysis is based on the idea that net-metering will go away. Since it's likely to remain, albeit at a less consumer-friendly rate, the ability to sell excess energy to the grid will shave a few years off of the payback period. Also, the average peak sun hours (PSH) on which I based the PV analysis is for the northern US; sunnier locations will produce more electricity or use a smaller array, which will shorten the payback period.

## Solar + Storage with No Demand

Removing the demand charge and going with the lower rates shifts the cost away from demand and on to the off-peak purchase:

 Monthly energy cost (peak) \$0.00 Monthly energy cost (off-peak) \$24.00 Monthly demand cost: \$0.00 Net cost per month \$24.00

When solar and storage are included, the difference between the demand and the no-demand plans are insignificant, so the PV/battery payback period is almost the same.

What about just a battery bank without the PV array? I won't repeat it here, but you can see that  analysis in my Tesla Powerwall article.

# Solar + Storage or Smart Appliances with Load Shifting?

Which combination of technology is best for your needs? Like most technical questions, the answer is, "It depends." Some factors to consider:

Are your major appliances ready to be replaced? If so, then going to smart models seems like an easy choice. Coupled with an appropriate pricing plan, this is the smallest investment that a consumer can make and still get a nice return, albeit with minor modifications in lifestyle. However, the selection of Smart Grid compatible appliances is pretty small right now, and I'm always concerned about buying cutting edge technology; I prefer to wait for "version 2.1" so I know the major bugs have been worked out.

If you're considering solar and storage, will you live in the house beyond the payback period? Even if the answer is no, it could still pay off to install the PV array. In some markets, rooftop solar can increase the resale value of a home.

Can you finance the equipment yourself or will you need a loan? If you finance it yourself, there's a chance that other investments might have a bigger return. If you take out a loan, the interest will lengthen the payback period.

Do you want backup power without burning fossil fuels in a generator? The PV/storage combination gives you that option. It's unlikely to power your entire house during a lengthy blackout, but it can power your critical loads.

Finally, do you want to cast an economic vote by supporting the green energy industry? Some people are willing to think beyond short-term finances, choosing to strike a balance between their own immediate wealth and the long-term sustainability of society.

How do you cope with the Smart Grid? By being a smart consumer armed with data. You've seen the data; use it smartly!

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