Blended Electricity Rates, Solar Power, & Your Bill

Take a look at your electricity bill, and you’ll quickly realize that what you pay for power isn’t always as simple as the number of kilowatt-hours (kWh) you use multiplied by a single electricity rate.

Depending on your utility and rate structure, several different costs can influence what you actually pay for electricity. That can make it difficult to determine the true cost of each kWh you use – and even harder to understand how much you could potentially save by going solar.

A blended electricity rate can help provide a clearer picture by combining applicable electricity costs into a single average rate. While that number doesn’t tell the entire story, it can provide a useful starting point for understanding your current energy costs and evaluating the potential financial benefits of solar.

What Is a Blended Electricity Rate?

A blended electricity rate is an average cost per kilowatt-hour (kWh) that combines the different rates and usage-based charges that affect what you pay for electricity. Instead of focusing on a single advertised rate, it looks at what you actually paid relative to how much electricity you used.

At its simplest, the calculation looks like this:

Use-based electricity costs ÷ total kWh used = blended electricity rate

For example, say you used 1,000 kWh of electricity during a billing period and your electricity costs totaled $180. Dividing $180 by 1,000 kWh gives you a blended electricity rate of $0.18 per kWh.

That 18-cent rate provides a simple benchmark for understanding what your electricity is costing you on average. This can be particularly useful when evaluating solar because the rate used to estimate the value of the electricity your system could offset can have a significant impact on projected savings.

However, a blended utility rate is still an average. It doesn’t necessarily tell you when you used electricity or how individual charges contributed to your bill – distinctions that become important when taking a closer look at your energy use and the potential value of solar.

 

What Goes Into Your Electricity Rate

The price you pay for electricity can be made up of several different charges and rates. Exactly what appears on your bill depends on your utility, electricity supplier, rate plan and how you use electricity.

Understanding these different components can help explain why the rate you see advertised by a utility or supplier may not reflect what each kilowatt-hour of electricity ultimately costs you.

Your power bill can include several different charges and rate structures that ultimately affect how much you pay for electricity, including:

• Supply charges
• Delivery charges
• Time-of-use rates
• Tiered rates
• Fixed charges
• Demand charges

Supply Charges

Supply charges cover the electricity you consume. Depending on where you live and your energy provider, the rate you pay for electricity supply may be fixed for a period of time or fluctuate based on market conditions and your supply agreement.

Delivery Charges

Delivery charges cover the cost of getting electricity from the power grid to your home or business. These charges are separate from the cost of the electricity itself and can include usage-based charges tied to the amount of electricity you consume.

Time-of-Use Rates

With time-of-use rates, the price of electricity changes depending on when you use it. Electricity may cost more during peak periods, when demand on the grid is higher, and less during off-peak hours.

This makes when you use electricity an important part of understanding your actual energy costs – particularly when comparing solar electricity rates and the value of the electricity your solar system produces.

Tiered Rates

A tiered rate structure charges different rates based on how much electricity you use during a billing period. For example, electricity consumption up to a certain threshold may be charged at one rate, while usage above that threshold is charged at another.

Fixed Charges

Some charges remain the same regardless of how much electricity you use. Because these costs aren’t tied directly to consumption, reducing your grid electricity use with solar may not reduce or eliminate them.

Demand Charges

Demand charges are primarily a consideration for commercial and industrial customers. Rather than being based only on the total amount of electricity consumed, these charges can be based on the highest level of electricity demand during a specified period.

For businesses with significant peaks in electricity use, demand charges can represent an important part of the overall electric bill. They also illustrate why simply looking at an average blended utility rate doesn’t always tell you everything you need to know about the cost of electricity.

 

Why Blended Electricity Rates Matter for Solar

When considering solar, how much electricity you use is only part of the equation. How much that electricity costs also plays an important role in determining the potential financial value of a solar energy system.

Every kilowatt-hour your solar panels produce and you use on-site represents electricity you may not need to purchase from the grid. But determining the value of that electricity isn’t always as simple as comparing solar production against the supply rate listed on your utility bill. As we’ve seen, the actual cost of grid electricity can be influenced by multiple charges and rate structures.

That’s where understanding your blended electricity rate is helpful. By providing an average cost per kilowatt-hour, it gives you a more useful starting point for estimating the value of the electricity a solar system could offset.

Getting that starting point right matters. Electricity-cost assumptions can influence projected savings, estimated payback periods and the overall financial picture presented when you’re considering a solar investment. The more accurately those assumptions reflect what you’re actually paying for power, the more useful those projections become.

 

Estimating Solar Savings

Projected solar savings depend in part on the value assigned to the electricity your system is expected to offset. If that calculation is based on an electricity rate that doesn’t accurately reflect what you’re paying, the resulting savings estimate may also be inaccurate.

A blended electricity rate can provide a more useful starting point by accounting for multiple usage-based costs rather than relying on a single supply rate. From there, your electricity usage, rate structure and expected solar production can be considered to develop a more complete savings estimate.

Calculating Solar Payback

Your electricity costs can also affect the estimated payback period for a solar installation.

Payback is essentially the ROI on your solar system. If the solar electricity rates used to project those benefits don’t accurately reflect the value of the grid electricity being offset, the estimated payback period may be overly optimistic or too conservative.

Using realistic electricity costs helps create a more useful projection of how solar may perform as a long-term investment.

Comparing Solar Power to Grid Electricity

A blended utility rate can also serve as a benchmark when comparing solar-generated electricity with electricity purchased from the grid.

That comparison becomes increasingly important over the life of a solar system. Utility electricity rates change (almost always going up), while a properly designed solar system allows you to generate a portion – or all of – the electricity you need for your property.

 

The Limitations of Blended Electricity Rates

A blended electricity rate can make a complicated electric bill easier to understand, but there is a tradeoff: averaging multiple costs into a single number can leave out some important details.

One of the biggest is when you use electricity. If you’re on a time-of-use rate plan, for example, a kilowatt-hour consumed during a higher-cost peak period may be worth considerably more than one consumed during an off-peak period. A blended rate averages those differences together.

The same issue applies to the charges that make up your bill. Some costs are directly tied to how much electricity you use, while others may remain regardless of your consumption. For commercial and industrial customers, demand charges can add another layer of complexity because costs may also be influenced by periods of high electricity demand.

A blended rate shouldn’t be viewed as the final word when evaluating solar. It provides a helpful benchmark, but understanding how and when you use electricity can provide important context that an average alone cannot.

 

How Smart Monitor Data Can Provide a Clearer Picture

Smart monitors collect electricity-use data at regular intervals throughout the day. Depending on the meter and utility, that data can provide insight into hourly or even shorter periods of electricity consumption, making it easier to see when your home or business uses the most power.

That matters because solar panels don’t produce electricity at the same rate throughout the day. Production typically increases as the sun rises, peaks during daylight hours and declines toward evening. Looking at energy-use patterns alongside anticipated solar production can help show how closely the two align.

For customers on time-of-use plans, this information can be particularly useful. Knowing when electricity is consumed can help determine how much usage occurs during higher- and lower-cost periods and how solar production may affect the amount of electricity purchased during those times.

Smart monitor data can ultimately give solar professionals more information to work with when evaluating your energy needs and designing a system around the way you actually use electricity.

 

Understand Your True Electricity Costs Before Going Solar

Understanding your electricity usage, rate structure and energy costs can give you a clearer picture of what solar could mean for your home or business.

With the right information, you can better estimate potential savings, evaluate long-term value, and make a more informed decision about investing in solar and what you’ll need. 

Take Control of Your Energy Costs

Speak to our team of solar technicians about bringing solar power to your property.