Peak-Rate Avoidance Math: How Home Batteries Save Money
The financial case for a home battery comes down to one number: the arbitrage spread — the difference between what you'd pay for peak electricity and what your stored solar costs. This guide walks through the exact math, with real utility rates, daily and annual savings calculations, break-even analysis, and a comparison of three battery strategies: self-consumption, TOU arbitrage, and backup-only.
The Core Equation
Every battery savings calculation boils down to this:
Daily Savings = kWh discharged × Arbitrage Spread
Where:
- kWh discharged = usable battery capacity actually used each day
- Arbitrage Spread = Peak rate − Cost of charging (usually $0/kWh from solar)
If you discharge 10 kWh during peak hours at a $0.30/kWh spread, you save $3.00/day. Over a year, that's $1,095.
Real-World Example: PG&E EV2-A Rate Plan
Let's work through a complete calculation for a 4-person household in PG&E territory with a 10 kWh battery (usable):
The Rates
| Period | Hours | Rate |
|---|---|---|
| Off-Peak | 12am–3pm | $0.28/kWh |
| Partial-Peak | 3pm–4pm, 9pm–12am | $0.36/kWh |
| Peak | 4pm–9pm | $0.43/kWh |
The Setup
- Battery charges from solar during the day (cost: $0/kWh since solar has no marginal cost)
- Battery discharges during peak (4pm–9pm) covering 10 kWh of the household's evening load
- Without the battery, the household would buy those 10 kWh from PG&E at peak rate ($0.43/kWh)
Daily Savings
- Electricity avoided: 10 kWh × $0.43/kWh = $4.30
- Cost of charging: $0.00 (from solar)
- Daily savings: $4.30
Annual Savings
- Daily: $4.30
- Annual (365 days): $4.30 × 365 = $1,569.50
But this is the optimistic case. In reality, the battery won't fully discharge every day. Winter production is lower, some days are cloudy, and occasionally you use less than the battery can cover. A more realistic capacity factor is 85%:
- Adjusted annual savings: $1,569.50 × 0.85 = $1,334/year
Break-Even Analysis
A 10 kWh battery system (e.g., two Enphase IQ 5P batteries) costs approximately $14,000 installed. With the California SGIP General Market rebate (~$2,000):
- Net cost: $12,000
- Annual savings: $1,334
- Simple payback: $12,000 ÷ $1,334 = 9.0 years
Adding VPP revenue of ~$400/year (see our VPP Enrollment Guide):
- Annual savings + VPP: $1,734
- Payback with VPP: $12,000 ÷ $1,734 = 6.9 years
Three Battery Strategies Compared
Strategy 1: Self-Consumption
Goal: Maximize the amount of your solar production that you use directly, minimizing both exports and imports.
- How it works: Battery charges from solar whenever production exceeds consumption. Battery discharges whenever consumption exceeds production.
- Best for: Flat-rate electricity plans (no TOU), or NEM 2.0 grandfathered customers
- Annual savings: $600–$900 (lower because no TOU arbitrage)
- Pros: Simple, no manual optimization, good for grid independence
- Cons: Doesn't maximize financial return under TOU rates
Strategy 2: TOU Arbitrage (Recommended for NEM 3.0)
Goal: Store cheap solar and use it during the most expensive hours.
- How it works: Battery charges during midday off-peak (from solar). Battery holds charge until peak hours, then discharges during the most expensive TOU window.
- Best for: NEM 3.0 customers on TOU rate plans (most CA solar customers)
- Annual savings: $1,100–$1,600 (highest savings)
- Pros: Maximizes financial return
- Cons: Requires TOU rate plan enrollment; needs smart scheduling (most modern batteries handle this automatically)
Strategy 3: Backup + Occasional Arbitrage
Goal: Keep the battery mostly full for backup, with opportunistic TOU savings on the top 20–30% of capacity.
- How it works: Battery holds 70–80% charge for backup, uses the top 20–30% for daily cycling during peak.
- Best for: Areas with frequent outages (PSPS events, hurricane zones), medical baseline customers
- Annual savings: $400–$700 (lower because most capacity is reserved)
- Pros: Reliable backup power for emergencies
- Cons: Significantly lower financial return; may not justify battery cost on savings alone
Strategy Comparison Table
| Self-Consumption | TOU Arbitrage | Backup + Partial | |
|---|---|---|---|
| Annual savings | $600–$900 | $1,100–$1,600 | $400–$700 |
| VPP compatible | Yes | Yes | Limited |
| Backup available | Full | Full | Full (prioritized) |
| Payback (10 kWh, PG&E) | 12–16 years | 7–10 years | 16–25 years |
| Best for | Flat-rate plans | NEM 3.0 + TOU | Outage-prone areas |
The Math with Utility Rate Increases
California electricity rates have increased 5–8% per year over the past decade. If rates continue rising, battery savings grow over time. Here's how a 5% annual rate increase affects the 10-year total savings for our TOU arbitrage example:
| Year | Rate | Annual Savings | Cumulative |
|---|---|---|---|
| 1 | $0.43/kWh | $1,334 | $1,334 |
| 2 | $0.45/kWh | $1,401 | $2,735 |
| 3 | $0.47/kWh | $1,471 | $4,206 |
| 5 | $0.52/kWh | $1,622 | $7,392 |
| 7 | $0.58/kWh | $1,789 | $11,129 |
| 10 | $0.67/kWh | $2,089 | $17,533 |
With a 5% annual rate increase, the 10-year cumulative savings reach $17,533 — well above the $12,000 net battery cost, yielding a clear net positive return by year 7.
Utility-Specific Examples
SDG&E TOU-DR1 (Highest Peak Rates)
- Peak rate: $0.55/kWh
- Arbitrage spread: $0.55 − $0.00 = $0.55/kWh
- Daily savings (10 kWh): $5.50
- Annual savings (85% capacity factor): $1,706/year
- Payback: ~7 years (without VPP)
SCE TOU-D-PRIME (Summer On-Peak)
- Peak rate: $0.48/kWh (Jun–Sep)
- Arbitrage spread: $0.48 − $0.00 = $0.48/kWh
- Daily savings (10 kWh, summer): $4.80
- Annual savings (blended summer/winter): $1,400/year
- Payback: ~8.6 years
The Export Value Trade-Off
Under NEM 3.0, every kWh you store in your battery instead of exporting to the grid saves you the difference between the peak rate and the NEM 3.0 export rate. Since NEM 3.0 export rates during midday average $0.04–$0.06/kWh, the opportunity cost of storing vs. exporting is minimal:
- Export 1 kWh at midday: Earn $0.04
- Store 1 kWh and use at peak: Save $0.43–$0.55
- Net benefit of storing vs. exporting: $0.39–$0.51/kWh
This is why NEM 3.0 makes batteries essential — the math overwhelmingly favors storage over export.
Related Guides
- NEM 3.0 Survival Guide — Why California's net metering changes make batteries essential
- Battery Sizing for TOU Arbitrage — Choose the right battery capacity for your rate plan
- VPP Enrollment Guide — Earn additional revenue from your battery
- Battery Rebates by State — Find incentives to reduce your battery cost
Run your own numbers
Our Battery Storage ROI Analyzer uses your actual utility rate plan, solar production data, and household consumption to calculate daily, annual, and lifetime savings — with break-even analysis and rate increase projections. Free, no signup.
Calculate My Savings →Sources: PG&E Rate Schedule EV2-A (effective Jan 2026), SCE TOU-D-PRIME Rate Schedule, SDG&E TOU-DR1 Rate Schedule, CPUC NEM 3.0 Avoided Cost Calculator, LBNL Tracking the Sun Report, NREL Distributed Energy Storage Economic Analysis, California SGIP Program Data (2025–2026).