Time of use pricing works by adjusting the price of energy in real time, depending on demand. In homes, second generation models of smart meters, known as SMETS2, automatically send updates to energy suppliers about household energy use at regular intervals.
This allows the energy companies to see exactly how much energy its customers are using throughout the day, and would allow them to quickly adjust prices, according to demand. The smallest interval currently available is half an hour, however this isn’t the default option and many people’s data will be sent at a lower frequency than this.
Customers could take advantage of lower prices for energy at quieter times of the day, by choosing to run appliances like dishwashers or washing machines outside peak times. On the other hand, customers could be charged more for using these same appliances at busy times of day – for example mornings and evenings, when people are typically at home and using more energy.
Several energy suppliers already offer these types of tariffs, which charge customers different prices for using energy at different times of day (with cheaper tariffs often overnight). However, switching to time of use pricing would allow energy companies to offer cheaper energy to millions more households across Great Britain.