This guide covers time-of-use (TOU) rate arbitrage specifically — shifting when you draw stored power to exploit a price spread. That’s related to but distinct from demand-charge peak shaving (reducing your billed peak kW on commercial-style demand-charge plans), which most residential customers aren’t on and isn’t covered here.
This guide covers time-of-use (TOU) rate arbitrage specifically — shifting when you draw stored power to exploit a price spread. That’s related to but distinct from demand-charge peak shaving (reducing your billed peak kW on commercial-style demand-charge plans), which most residential customers aren’t on and isn’t covered here.
If your utility bills you on a time-of-use (TOU) rate plan, a home battery can do more than back you up during outages — it can actively arbitrage the spread between cheap off-peak power and expensive peak-hour power. This is called peak shaving, or battery arbitrage, and it’s one of the few ways a battery earns its keep even on days when the grid never goes down.
How Peak Shaving Works
The mechanics are simple: charge the battery when electricity is cheapest (usually overnight or midday if you have solar), then discharge it to cover your home’s load during the utility’s expensive peak window — typically late afternoon through evening. You’re not using less electricity overall; you’re shifting when you draw it from the grid, paying off-peak rates for energy you then “spend” during peak hours.
For background on how TOU plans are structured, see our time-of-use electricity rates guide. The bigger the gap between your peak and off-peak rate, the more valuable this strategy becomes.
Round-Trip Losses Eat Into the Savings
Peak shaving isn’t free money — every charge/discharge cycle loses some energy to heat and conversion inefficiency. A modern LFP battery system typically returns 85–95% of what you put in — 85–90% for AC-coupled systems, 90–95% for DC-coupled (see our round-trip efficiency explainer for the full breakdown), meaning a small slice of your arbitrage margin disappears before it ever reaches your panel. See our round-trip efficiency explainer for how to calculate your own system’s real-world return. A thin rate spread combined with a less-efficient inverter setup can erase most of the savings.
A Simple Arbitrage Calculation
| Input | Example value |
|---|---|
| Off-peak rate | $0.14/kWh |
| Peak rate | $0.42/kWh |
| Rate spread | $0.28/kWh |
| Round-trip efficiency | 88% |
| Effective savings per kWh cycled | $0.42 − ($0.14 ÷ 0.88) = $0.26 |
| Daily cycled capacity (13.5 kWh battery, full cycle) | 13.5 kWh |
| Daily savings | ~$3.51 |
| Annual savings (330 usable cycling days) | ~$1,158 |
That’s a strong spread. Many utilities offer a much narrower gap — sometimes under $0.10/kWh — which can cut this annual figure by more than half. Always pull your actual rate schedule before assuming a national-average number applies to you. A submeter or plug-in energy monitor lets you verify your actual cycling and savings against this kind of estimate.
Peak Shaving vs. Backup-Only Operation
Running a battery purely in backup mode (sitting at full charge, waiting for an outage) earns nothing day-to-day. Most modern inverters let you set a hybrid mode: cycle the battery for arbitrage most of the time, but reserve a set percentage of charge for emergency backup. Check your inverter’s settings — Tesla Powerwall, Franklin, and most hybrid inverters covered in our hybrid inverter guide support a configurable reserve.
Does This Shorten Your Battery’s Life?
Daily cycling adds wear compared to a battery that only discharges a handful of times per year during actual outages. Most LFP batteries are warrantied for thousands of cycles (commonly 6,000–10,000 at 80% retained capacity), so one cycle a day for ten years (about 3,650 cycles) is well within normal warranty terms for most current-generation products — but confirm your specific battery’s cycle warranty before committing to daily arbitrage use.
Bottom Line
Peak shaving can turn a battery from a pure insurance policy into an asset that pays you back every single day — but only where the TOU rate spread is wide enough to outrun round-trip losses. Pull your actual utility rate schedule before assuming the economics work in your area.
Official sources: U.S. Energy Information Administration — Electricity Data, Department of Energy — Time-of-Use Rates.
John Farmer is a veteran and the founder of Veteran Forge Strategies LLC. He researches home battery backup, solar, and energy storage to help homeowners make confident decisions about energy resilience and lower power bills, and writes Home Power Vault to make backup power simple to understand.
