Time-of-use (TOU) rates: why a battery is worthless on the wrong plan
Time-of-use (TOU) rates price electricity differently by time of day, with the highest prices during the late-afternoon and evening peak. A battery saves money by charging when power is cheap and discharging during peak, so the savings depend entirely on the peak-to-off-peak spread.
If you remember one thing about home-battery economics, make it this: a battery on the wrong rate plan barely saves money. Time-of-use pricing is the engine that makes daily bill savings possible, and where that engine is missing, most of the financial case disappears.
What time-of-use means
On a time-of-use (TOU) plan, the price of a kilowatt-hour changes depending on when you use it. Power is cheapest overnight and midday (off-peak), and most expensive in the late afternoon and evening (peak), when everyone gets home, cooks dinner, and runs the air conditioning at once. The utility prices that crunch higher to discourage demand when the grid is strained.
A flat-rate plan, by contrast, charges the same price per kWh all day. Many utilities now default solar and battery customers onto TOU plans, but plenty of households are still on flat rates, and some have the choice.
How a battery makes money from it
A battery turns the price difference into savings through a move called arbitrage: buy low, use high.
- It charges off-peak, when electricity is cheap, or directly from your solar panels when the sun is up.
- It discharges at peak, in the expensive evening hours, so your home runs on stored cheap energy instead of pricey grid power.
Every kWh you shift from peak to off-peak earns you the difference between the two prices. Do that day after day and the savings accumulate.
The spread is everything
Here is the part that decides the whole thing. The bigger the gap between peak and off-peak prices, the more each shifted kWh is worth.
- A plan with a wide spread, say a peak of $0.55 and off-peak of $0.20, pays roughly $0.35 for every kWh your battery moves. That adds up fast.
- A plan with a narrow spread of a few cents pays almost nothing for the same effort.
This is why two identical batteries in two homes can have wildly different payback periods. The hardware is the same; the rate plan is not. The peak-to-off-peak spread, and how much energy you can shift, drives the daily savings more than almost anything else. (How much you can shift depends on your usable capacity and power rating, covered in kWh vs kW.)
The against-interest part
Now the honest warning a battery salesperson is unlikely to volunteer.
On a flat-rate plan with no price spread, a battery barely dents your bill. There is no cheap-versus-expensive difference to arbitrage, so the daily savings engine simply is not there. On a flat rate, a battery mostly buys you backup power and resilience, which is a real benefit, but not a financial one. If someone sells you a battery on bill savings without first checking your rate plan, they have skipped the single most important variable.
The good news is that this is sometimes fixable. If your utility offers a TOU option and you have a battery (or solar), switching to a TOU plan can be what turns the battery from a backup device into a money-saving one. It is worth checking before you assume a battery cannot pay.
What to do with this
Before you judge whether a battery is worth it, find out two things: what rate plan you are on, and whether a TOU plan with a real peak-to-off-peak spread is available to you. Then run it. Our Worth It calculator models your rate spread so the savings figure reflects your actual plan, not a best case. For state-level rate context, see the California report, and if a VPP program exists in your area, VPP payments can stack on top of TOU savings.