What is Energy Arbitrage? Optimizing Your Solar Energy Usage

What is Energy Arbitrage? If you’re looking into solar energy or strategies to lower your electricity bill, you may have come across something referred to as “energy arbitrage.” Energy arbitrage allows you to take advantage of fluctuating electricity prices, especially in areas with time-of-use (TOU) rates. If you are on a time-of-use (TOU) billing system [...]

What is Energy Arbitrage?

If you’re looking into solar energy or strategies to lower your electricity bill, you may have come across something referred to as “energy arbitrage.” Energy arbitrage allows you to take advantage of fluctuating electricity prices, especially in areas with time-of-use (TOU) rates.

If you are on a time-of-use (TOU) billing system with your electricity provider, it means that you are getting charged different rates for your electricity usage at different times of day. TOU rates vary throughout the day based on demand—electricity costs are lower during off-peak hours (often late at night) and higher during peak hours (typically late afternoon and early evening).

In the simplest terms, energy arbitrage means buying electricity when it’s cheapest and using or storing it for times when rates are higher. Your Net Metering program, which sells your excess energy generated from solar back to the grid, make solar the most potent way save money through energy arbitrage and gives you the potential to cover 100% of your power bill.

How Does Energy Arbitrage Work with Solar?

Solar energy pairs perfectly with energy arbitrage, especially if you’re in a TOU billing area. With solar panels, you’re generating electricity during the day—when TOU rates are generally at their highest.

Daytime Solar Production at Peak Rates

During daylight hours, your solar panels are generating power for your home, which happens to coincide with the highest energy rates in a TOU plan. This means you’re using the solar power you produce without paying the high daytime rates from the grid. Any excess solar energy you don’t use is sold back to the grid at those high daytime rates through the Net Metering program, where you will earn energy credits for the power you generate.

This is how you build up excess energy credits that can be used any time throughout the year to cover your energy spent at nighttime or during the winter, allowing you to effectively cover 100% of your power bills with solar.

Nighttime Energy Use at Off-Peak Rates

In the evening and nighttime, when your solar panels aren’t generating power, you might need to draw from the grid. This is where energy arbitrage comes in: you’re now buying electricity at the cheaper, off-peak rates. With the credits earned from selling your excess daytime power at higher rates, you can easily cover these off-peak energy costs, reducing your overall bill.

The Financial Benefits of Solar-Powered Energy Arbitrage

The strategy of energy arbitrage with solar has financial perks that go beyond just producing your own electricity. Here’s how it benefits your budget:

Lower Overall Costs: By using electricity generated by your solar system during peak rate times and buying from the grid only when rates are low, you reduce how much you spend on electricity overall.
Maximizing Solar Efficiency: Solar energy is most effective when you can leverage TOU rates. Instead of just generating power, you’re optimizing its value by selling it back at peak prices and “repurchasing” at lower costs, maximizing every kilowatt produced.
Energy Independence: Although you’re still connected to the grid, energy arbitrage increases your control over energy costs, making your home less reliant on grid price fluctuations.

Flat-Rate vs. Time-of-Use (TOU) Rates

In areas with flat-rate billing, the cost of electricity remains constant throughout the day.
Energy arbitrage is still possible with solar and Net Metering because you earn credits for
the energy you send back to the grid, even if there’s no price difference between day and
night. However, the financial benefits of energy arbitrage are most pronounced in areas
with TOU billing, where rate fluctuations create clear opportunities for savings.

Get a State-of-the-Art Solar Setup with XOLAR

Energy arbitrage, especially when paired with solar, is a powerful way to slash your energy costs and ease off the grid. By storing or using your solar energy during peak hours and pulling from the grid only during off-peak times, you make the most of TOU rates and Net Metering credits. This strategy lets you maximize your renewable energy, making solar even more cost-effective. For homes with TOU billing, Net Metering, or battery storage, energy arbitrage is a game-changer, storing cheaper electricity to use when rates are highest.

Interested in going solar?

The first step is to acquire a solar proposal. By understanding your energy consumption, sunlight exposure, and roof orientation and space, we can design a solar solution that meets your needs both now and in the future. A well-sized solar system can help you achieve your energy goals and reduce your carbon footprint. Our Solar Specialists and Project Managers can cleanly walk you through the steps of what is required and make sure you maximize the value of the provincial or federal programs in your area. We’ll also get you started on the vital first step of acquiring a tailor-made solar proposal for your residential project’s energy needs.

Schedule a consultation for our solar specialist’s expert guidance here.