SDG&E Commercial TOU Rates: Solar and Battery Optimization for San Diego Businesses
San Diego Gas & Electric has some of the highest commercial electricity rates in the United States, and its time-of-use (TOU) rate structures create a complex optimization problem for commercial solar and battery storage. Understanding how SDG&E's rate schedules work — and designing your system to take full advantage of them — is the difference between a good solar investment and a great one.
SDG&E's Commercial TOU Rate Schedules
Most San Diego commercial customers are on one of SDG&E's time-of-use rate schedules: AL-TOU (Large Commercial), AG-TOU (Agricultural), or PA-TOU (Public Authority). These rates have three components: an energy charge (cents per kWh, varying by time of day and season), a demand charge (dollars per kW of peak draw), and a customer charge (fixed monthly fee).
SDG&E's on-peak period runs from 4 PM to 9 PM on weekdays, year-round. During this window, energy charges are significantly higher than off-peak rates — often 2–3 times higher. The on-peak demand charge, measured as the highest 15-minute average during on-peak hours in the billing period, is the most impactful component for many commercial customers.
The mismatch between solar generation (which peaks around noon) and SDG&E's on-peak window (4–9 PM) is the central challenge of commercial solar optimization in San Diego. A system designed without accounting for this mismatch will underperform relative to its potential.
How Battery Storage Bridges the TOU Gap
Battery storage solves the TOU mismatch by storing solar energy generated during midday and discharging it during the on-peak window. A properly sized and programmed battery system can shift 2–4 hours of solar generation into the on-peak period, capturing the higher energy rate value and reducing on-peak demand charges simultaneously.
The optimal battery dispatch strategy depends on your specific load profile, rate schedule, and solar generation pattern. A facility with a flat load profile benefits from a different dispatch strategy than one with a sharp afternoon peak. An independent consultant will model your actual interval data — not a generic assumption — to determine the optimal battery size and dispatch program.
SDG&E's net energy metering (NEM) program compensates excess solar generation at the retail rate, but the compensation rate varies by time of day under NEM 3.0. Battery storage allows you to maximize self-consumption during high-value on-peak hours rather than exporting at lower off-peak rates.
NEM 3.0 and Its Impact on Commercial Solar Economics
California's NEM 3.0 tariff, which took effect in April 2023, significantly reduced the value of daytime solar exports for new installations. Under NEM 3.0, excess solar generation exported to the grid during midday hours is compensated at avoided-cost rates that are substantially below retail rates.
For commercial customers, NEM 3.0 reinforces the case for battery storage: systems designed to maximize self-consumption and minimize grid export perform significantly better under NEM 3.0 than systems designed for maximum generation. Right-sizing the solar array to match on-site consumption — rather than oversizing for maximum export — is now the correct design philosophy.
Existing commercial solar customers on NEM 1.0 or NEM 2.0 are grandfathered under their original tariff for 20 years from their interconnection date. If you're considering adding battery storage to an existing NEM 2.0 system, the tariff implications require careful analysis.
Demand Charge Reduction: The Biggest Opportunity
For many San Diego commercial customers, demand charges represent the largest single opportunity for bill reduction. SDG&E's on-peak demand charges can reach $25–40 per kW per month — meaning a facility with a 100 kW on-peak demand pays $2,500–$4,000 per month in demand charges alone.
Battery storage can reduce on-peak demand by discharging during the highest-draw periods, directly reducing the measured peak. The key is accurate demand forecasting: the battery must begin discharging before the peak occurs, not after. Modern battery management systems use machine learning to predict demand peaks and dispatch accordingly.
The economics of demand charge reduction are particularly compelling for facilities with sharp, predictable demand spikes — HVAC startup, industrial equipment cycling, EV charging — where a relatively small battery can eliminate a large demand charge.
SGIP Incentives and Financing for San Diego Storage
California's Self-Generation Incentive Program (SGIP) provides rebates for battery storage systems installed in California. Current SGIP incentive levels vary by customer type and system size, but can offset 15–30% of battery storage costs for standard commercial customers and significantly more for equity-eligible customers.
SGIP applications are submitted through the customer's utility — SDG&E in San Diego — and are processed on a first-come, first-served basis within each budget category. Timing your application to coincide with available SGIP budget is an important planning consideration.
California's C-PACE program is available for commercial properties in San Diego County and can fund 100% of solar and battery storage project costs with no upfront capital. The combination of SGIP rebates, federal ITC, C-PACE financing, and SDG&E bill savings can make solar-plus-storage cash-flow positive from day one for many San Diego commercial properties.
The San Diego Solar Buyer's Checklist
Before you sign anything, read this. Our independent advisors put together the exact questions and red flags every property owner should know, completely free.
- Questions to ask every installer before signing
- How to spot inflated system size estimates
- What NEM 3.0 means for your payback period
- Red flags in financing and PPA agreements
- How to run a competitive bid process
- What independent consultants check that installers won't
- Key incentives available in California right now
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