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Time of use tariffs: all you need to know

piggy bank on radiator

A fresh form of electricity billing could boost renewable energy use, reduce the UK’s carbon dioxide emissions, and save people money.

Time of use tariffs, or TOUs, encourage customers to use energy at off-peak times.

The TOU flexible tariff offers people cheaper electricity prices when demand and energy prices are at their lowest. A household’s smart meter monitors prices and this data can be used to move some types of energy use to cheaper periods, helping to avoid high, peak rate prices.

It’s a win-win situation. Energy companies offer lower prices at off-peak times so they can better manage demand, and customers can lower their bills.

Understanding time of use tariffs

Time of use tariffs can:

  • help customers reduce their bills by using energy at off-peak times
  • work with a smart meter
  • relieve pressure on the grid by balancing demand

Time of use tariffs are still new to the UK, and few companies offer them. They are not suited to everyone; people who sign up may need to change some habits to make the most of the deal.

Why offer time of use tariffs?

The UK’s national grid draws from a broad base of energy supplies to cope with the country’s day-to-day demands.

 

Demand can sometimes outstrip supply during peak periods. Typically, gas or diesel-powered plants fire up to meet that demand, adding to the UK’s carbon dioxide emissions. This reactive energy production is expensive, causing price spikes.

The average price for electricity in the UK was 16.36 pence per kilowatt-hour for the standard rate (April 2019-April 2020). The price does vary with some existing tariffs, such as Economy 7.

Tariff Price per kWh
Off-peak (night rate) economy 7 electricity 9.76p
On-peak (day rate) economy 7 electricity 20.03p

Like Economy 7, time of use tariffs encourage people to shift their energy use away from peak times. Fewer people drawing power at peak times means less likelihood of supply shortages, plus a better ability to use all the renewable energy we produce.

Being paid to use renewables

solar panels and wind turbines

In the early hours of 9 December 2019, the UK experienced high winds and blustery weather. The nation’s wind farms generated almost 45% of the country’s electricity that day, and at times there was an excess of wind power.

Some 2,000 homes that had signed up to the Agile Octopus price plan – a time of use tariff – were paid to use electricity that night. Octopus paid its Agile customers 5.6p for every kilowatt-hour of electricity used in specific overnight periods.

We know that solar power generation is only possible during daylight hours; wind power is far more unpredictable. Energy firms are keen to avoid ‘curtailing’ wind farms, turning them off when supply outstrips demand, hence the incentives to switch to time of use tariffs.

Who could benefit from time of use tariffs?

Not every household suits time of use tariffs. Many people will always need to use electricity at certain times for cooking, heating in winter and so on, so there will always be peaks and troughs.

Owners of electric vehicles could benefit massively from a time of use tariff. Owners charge their vehicle during periods with the lowest demand. They can even feed energy back into the grid during peak times, assuming the car is not in use, with the car acting like a home battery storage.

Home battery storage systems allow people to charge batteries during the hours of cheaper electricity and then use this electricity whenever they need it, or export it back to the grid. 

Electric vehicles may be the launchpad for the time of use tariff. The UK government has committed to the country reaching net zero carbon emissions by 2050 - it will phase out the sale of new petrol and diesel vehicles over the next 10-20 years. There will be a lot more charging of electric vehicles. Ideally, that would happen during times of low demand, and using renewable energy sources.

People who have more flexible lifestyles are also more likely to benefit. Washing machines and dishwashers can be used at night. There are many possibilities as more and more smart devices come onto the market, too.  Smart appliances can communicate with your smart meter and decide when to turn on and off to make the most of your tariff.

Smart meters

woman using a smart meter

Time of use tariffs only work with homes that have a smart meter installed.

Smart meters communicate regularly with energy suppliers via a secure data network. It’s similar to other wireless systems but does not require homes to have Wi-Fi or an internet connection. Your energy consumption displays, almost in real-time, on your in-home display. The UK has recently extended its target of every home having a smart meter by 2020 to 2024.

The UK’s wholesale energy prices update every 30 minutes. When wholesale prices drop, so can your bills if you are on a TOU tariff. You could make further savings if you can shift your daily electricity use outside of peak times. You can always use energy at peak times, too – your smart system will be looking to get you the best deal, but you still remain in control of your supply.

Possible savings

Citizens Advice surveys show that 20% of consumers would choose a time of use tariff. In its trial, some 75% of users said they were happy with the tariff. Also, the average reduction in peak demand electricity was between 5-10%.

They found that households could save £5 a year with time of use tariffs with no behavioural change, which adds up to some £19 million a year nationally. The survey revealed that people find it hard to react to half-hourly price changes, and therefore changing behaviours is needed to benefit further.

By using automation, such as controlling heating or charging electric vehicles, savings for time of use tariffs could increase to £272 million a year, which is around £70 a year per household on a time of use tariff.

Andrew Tod, insight and analytics manager at Energy Saving Trust, said: “With the rollout of smart meters and smart technologies, time of use tariffs will play an important role in helping to save consumers money, whilst balancing the grid and taking full advantage of low carbon sources of electricity generation.”

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Tom Shearman's picture
Tom Shearman brings 25 years' of journalism experience to the Energy Saving Trust blogging team. He loves writing about renewables and energy efficiency, plus how policy can change people and the environment. His articles have been published internationally, he has co-written trekking guide books, responsible travel articles and short stories.