Clear answer, explained.
A blended electricity rate is generally calculated by dividing electricity costs by total electricity consumption. It can be useful for an initial estimate, but it simplifies a commercial electricity bill into a single cents-per-kWh figure.
The limitation is that not every component of a commercial electricity bill behaves in the same way. Depending on the account and tariff, a bill may include energy charges, demand-related charges, Global Adjustment and other components. Their financial impact may depend on when and how electricity is consumed, rather than annual kWh alone.
Accurate solar modelling therefore starts with the facility’s consumption data. Interval data analysis shows when electricity is actually being used throughout the day and year. That profile can then be compared with expected solar generation to determine how much purchased grid electricity a proposed system is likely to displace.
For this reason, a commercial solar system should not be evaluated simply by multiplying projected annual generation by one blended electricity rate. Once the actual savings profile has been established, businesses can evaluate the investment using the appropriate financial metrics for commercial energy projects.
What this means in practice.
- A blended electricity rate is useful for rough screening, not detailed modelling.
- Annual electricity cost divided by annual kWh can hide differences between billing components.
- Electricity consumption timing can affect the value of solar generation.
- Interval consumption data provides a better foundation for savings calculations.
- Final solar economics should reflect the facility’s actual tariff and load profile.
Best-fit environments.
- You are estimating potential solar savings from annual utility bills.
- A proposal uses one average cents-per-kWh figure for the entire financial model.
- Your facility has demand charges or a more complex electricity rate structure.
- Your finance team needs a more defensible savings model before approving the project.
