Battery Sizing for TOU Arbitrage

Under California's NEM 3.0, the single most impactful financial decision you'll make is how much battery capacity to pair with your solar system. Too small and you'll still export cheap midday power and buy expensive evening power. Too large and you'll pay for capacity you rarely use. This guide shows you exactly how to calculate the right battery size for Time-of-Use (TOU) arbitrage — with real utility rates, worked examples, and sizing tables by household type.

What Is TOU Arbitrage?

TOU arbitrage is the practice of storing electricity when it's cheap and using it when it's expensive. Under California's Time-of-Use rate plans, electricity costs 3–5x more during peak evening hours (typically 4pm–9pm) than during midday off-peak hours. A home battery lets you:

1. Charge from your solar panels during the day (when rates are low and solar production is high)
2. Discharge during peak evening hours (when rates are $0.35–$0.55/kWh)
3. Pocket the difference as savings

The effective "arbitrage spread" — the gap between what you'd pay for peak electricity and what your stored solar cost you — is the core value driver for a battery under NEM 3.0.

California TOU Rate Schedules (2026)

The three major investor-owned utilities in California each offer multiple TOU rate plans. Here are the most common plans for solar + battery customers:

PG&E: EV2-A (Most Popular for Solar + Battery)

Period	Hours	Rate ($/kWh)
Off-Peak	12am–3pm	$0.28
Partial-Peak	3pm–4pm, 9pm–12am	$0.36
Peak	4pm–9pm	$0.43

SCE: TOU-D-PRIME

Period	Hours	Rate ($/kWh)
Off-Peak	8pm–8am	$0.26
Mid-Day	8am–2pm	$0.22
On-Peak	2pm–8pm	$0.38
Summer On-Peak (Jun–Sep)	2pm–8pm	$0.48

SDG&E: TOU-DR1

Period	Hours	Rate ($/kWh)
Off-Peak	12am–4pm	$0.25
On-Peak	4pm–9pm	$0.55
Off-Peak (evening)	9pm–12am	$0.30

SDG&E has the highest peak rates in the state, making TOU arbitrage especially valuable for San Diego homeowners.

The Battery Sizing Calculation

The right battery size depends on your evening energy consumption (the amount of electricity you use during peak hours that your solar panels can't cover). Here's the calculation:

Step 1: Determine Your Peak-Hour Consumption

Look at your utility bill or smart meter data to find your average daily consumption during peak hours (4pm–9pm). For a typical California household:

Household Size	Avg. Peak Usage (kWh/day)
1–2 people	6–9 kWh
3–4 people	9–13 kWh
5+ people	13–18 kWh

Step 2: Subtract Solar Production During Peak

Your solar panels still produce during early peak hours (4pm–6pm in summer). A 7kW system typically produces 2–4 kWh during this window. Subtract this from your peak consumption to get your "battery gap":

• 2-person household: 7 kWh − 3 kWh solar = 4 kWh battery gap
• 4-person household: 11 kWh − 3 kWh solar = 8 kWh battery gap
• 6-person household: 16 kWh − 3 kWh solar = 13 kWh battery gap

Step 3: Add a Usable Capacity Margin

Batteries can't discharge to 0% — most lithium-ion home batteries reserve 10–15% as a buffer. You also want a margin for cloudy days and seasonal variation. Add 20–30% to your battery gap:

• 2-person: 4 kWh × 1.25 = 5 kWh recommended
• 4-person: 8 kWh × 1.25 = 10 kWh recommended
• 6-person: 13 kWh × 1.25 = 16 kWh recommended

Step 4: Account for Backup Needs (Optional)

If you want whole-home backup during outages (PSPS events, earthquakes), add 50–100% to your calculated size. A 10 kWh battery covers essential circuits (lights, fridge, WiFi, phones) for 12–24 hours. Whole-home backup for a day typically requires 20–30 kWh.

Recommended Battery Systems by Size

Need	Capacity	Products	Installed Cost
Small (1–2 people, TOU only)	5–7 kWh	Enphase IQ 5P, Tesla Powerwall (1 unit in limited mode)	$7,000–$10,000
Medium (3–4 people, TOU + partial backup)	10–14 kWh	Tesla Powerwall 3, Enphase IQ 5P × 2, FranklinWH aPower	$12,000–$18,000
Large (5+ people, whole-home backup)	16–27 kWh	Tesla Powerwall 3 × 2, Enphase IQ 5P × 3, LG ESS Home 10+	$20,000–$32,000

ROI Estimates by Size

Using PG&E EV2-A rates and assuming average solar production, here are approximate annual savings and payback periods:

System	Annual TOU Savings	Net Cost (after SGIP)	Payback
5 kWh	$650–$850	$5,500–$7,000	7–9 years
10 kWh	$1,100–$1,500	$9,500–$13,000	8–10 years
15 kWh	$1,500–$2,000	$14,000–$19,000	9–11 years

These estimates assume SGIP rebate of 15–25% of installed cost. See our Battery Rebates by State guide for current SGIP eligibility and amounts.

Worked Example: 4-Person Household in San Diego

Let's walk through a complete sizing calculation for a real household:

• Location: San Diego (SDG&E)
• Household: 4 people, 2,200 sq ft home
• Solar system: 8kW
• Current bill: $280/month ($3,360/year)
• Peak consumption (4pm–9pm): 12 kWh/day average
• Solar during peak: 3 kWh/day
• Battery gap: 12 − 3 = 9 kWh
• With margin (×1.25): 11.25 kWh → round to 13.5 kWh (Tesla Powerwall 3)

Annual savings: 9 kWh/day × $0.30 spread × 365 days = $985/year TOU savings, plus $400/year VPP revenue = $1,385/year total. Battery cost: $16,500 − $3,000 SGIP = $13,500 net. Payback: 9.7 years.

Use our Battery Storage ROI Analyzer to run this calculation with your exact numbers.

Common Sizing Mistakes

1. Sizing for total daily consumption instead of peak consumption. You only need enough battery to cover the hours when solar isn't producing enough. A 30 kWh battery for a 2-person household is a waste of money.
2. Ignoring usable capacity. A "13.5 kWh" Tesla Powerwall 3 has ~13 kWh usable. Always check usable capacity, not nameplate.
3. Not accounting for seasonal variation. Winter solar production in CA drops 30–40%. Size for December, not June, or accept that you'll use the grid more in winter.
4. Forgetting about SGIP rebates. California's SGIP program can cover 15–50% of battery cost depending on your eligibility tier. See Battery Rebates by State.
5. Ignoring VPP revenue. Adding 10–20% to your payback calculation for VPP income can tip marginal systems into "worth it" territory. See our VPP Enrollment Guide.

Related Guides

• NEM 3.0 Survival Guide — Why California's net metering changes make batteries essential
• Peak-Rate Avoidance Math — The detailed math behind using batteries to dodge peak rates
• VPP Enrollment Guide — Earn additional revenue from your battery through grid programs
• Battery Rebates by State — Find incentives that reduce your battery cost

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Sources: PG&E Rate Schedule EV2-A (effective Jan 2026), SCE TOU-D-PRIME Rate Schedule, SDG&E TOU-DR1 Rate Schedule, Tesla Powerwall 3 Specifications, Enphase IQ Battery 5P Specifications, California SGIP Program Handbook (2026), NREL Residential Battery Storage Analysis.