The three components every bill contains
- Fixed customer charge. A flat monthly fee, typically $5–$30, that pays for metering, billing, and the connection to your house regardless of how much energy you use. Solar does not eliminate this.
- Variable energy charge. Per-kWh pricing, possibly varying by tier or time of day. This is the line item solar actually offsets.
- Riders and surcharges. Public-benefit funds, transmission cost recovery, fuel adjustment clauses, taxes. These typically scale with usage, so they are partially offset by solar.
When this site says "your electricity rate is 31 ¢/kWh", what we actually mean is the blended residential average reported by EIA — the all-in cost of one kilowatt-hour including riders, taxes, and any tier-weighted variation. This is the correct number for payback modeling because it reflects what a kWh of solar actually offsets on the average home's bill.
Tiered (block) rates
Most California, Arizona, and Northeast utilities use tiered residential rates: the first ~400 kWh per month price at one rate, the next ~400 kWh at a higher rate, and any usage beyond that at the highest "Tier 3" rate. The economic intent is conservation: the more you use, the more each marginal kWh costs.
Why this matters for solar: the first kWh you offset comes out of the most expensive tier. A heavy user on Tier 3 may be displacing 38 ¢/kWh consumption, not the 31 ¢ blended average. Conversely, an already-frugal user offsetting Tier 1 consumption may only save 22 ¢/kWh.
Practical implication: high-usage households on tiered rates are the most attractive economically for solar. The marginal kWh displaced is the most expensive one on the bill.
Time-of-use (TOU) rates
Under a TOU rate, the price of a kWh depends on the hour you consume it. A common pattern:
| Period | Hours | Indicative rate |
|---|---|---|
| Peak | 4 p.m. – 9 p.m. | 45 ¢/kWh |
| Mid-peak | 8 a.m. – 4 p.m. | 28 ¢/kWh |
| Off-peak | 9 p.m. – 8 a.m. | 22 ¢/kWh |
TOU is now the default residential rate for new customers of California's investor-owned utilities and is expanding rapidly elsewhere. Its consequences for solar are subtle and important:
- Solar production is concentrated during mid-peak hours. The morning and afternoon kWh you export are credited at the mid-peak rate (~28 ¢) under net metering, not the peak rate.
- Imports during evening peak hours are expensive. Late-evening cooking and TV usage gets billed at 45 ¢/kWh — the hours when your solar produces nothing.
- Solar paired with storage is dramatically more valuable under TOU. A battery charged from cheap midday solar and discharged at the evening peak captures a 17 ¢/kWh arbitrage that solar alone cannot.
Demand charges
Demand charges, common on commercial bills but rare (so far) on residential, bill you based on the single highest 15-minute average load you placed on the grid during the month. A whole-house air conditioner kicking on the same minute as your oven and electric dryer creates a demand spike that may dominate your bill.
Some utilities — Salt River Project in Arizona is the most prominent example — have introduced residential demand charges specifically to slow solar adoption. Demand charges are uncorrelated with energy consumption, so solar's energy offset does very little to reduce them. Battery storage and load shifting (smart appliances, EV charging timing) are the responses.
Net metering interaction
The rate structure interacts directly with the net-metering tariff — see our net metering guide for the full picture. The short version:
- Under traditional 1-for-1 net metering, the rate structure barely matters — every exported kWh is credited at the same rate that import would have cost.
- Under net billing (California NEM 3.0 and similar), exports are paid at avoided-cost rates that are usually much lower than retail. Now the rate structure matters enormously: peak-hour imports are billed at 45 ¢; midday exports are credited at 4–10 ¢.
How to actually look up your rate
- Find your utility's "Rates" or "Tariffs" page (every state PUC requires it to be published). The relevant document is usually titled "Residential Schedule" and given a code like "Schedule E-1" (PG&E) or "R-1" (typical northeast).
- Identify whether you are on a tiered, TOU, or simple flat-rate schedule. Your bill will list the schedule by name.
- Sum the energy charge, the riders, and the transmission/distribution components for a sample month. Divide by kWh used. That's your effective rate.
- Compare to the EIA state average. If you're substantially above, you live in a high-value solar market.
How our calculator handles it
For simplicity and national consistency, we use a single blended state-average rate. This is a deliberate trade-off: it gives stable estimates that don't require the user to decipher their bill, at the cost of underweighting both the higher economic value of solar for high-tier users and the complexity introduced by TOU.
If you are on a TOU or aggressively tiered rate and want a more precise estimate, run your inputs through your utility's own solar calculator — most large utilities publish one — or through NREL's PVWatts + your tariff's hourly schedule.
Last reviewed May 2025. Indicative TOU rates are illustrative; verify against your utility's published tariff.