What is energy surge pricing?

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.

Several simpler time of use tariffs are already offered by some suppliers for customers who opt-in, which enable customers to enjoy lower prices at night, when energy is less in demand and therefore cheaper. This includes a tariff designed to help people with electric vehicles (EVs) charge their cars at a cheaper rate.

However, surge pricing, which penalises people for using electricity at times of highest demand, does not currently exist in the UK and there are no plans to introduce it. The trial being run by the National Grid offers a reduced bill if certain conditions are met. There are also ‘agile’ tariffs and other time of use tariffs that do charge more than the average at peak times and less than the average at off-peak times.

All time of use tariffs offer people the opportunity to save money if their electricity use follows a different pattern to the average, or if they can change when they use electricity. If people are unable to modify their pattern of use enough to benefit from a time of use tariff, then they should not switch to one – and this is unlikely to ever be a requirement.

People on smart time of use tariffs can take advantage of cheaper electricity at times when there is lots of low-cost renewable energy, such as wind or solar, on the grid on particularly windy or sunny days. 

Time of use tariffs are more likely to influence the systems we have in our homes, rather than our behaviour. Smart charging systems and smart appliances are designed to ensure that households receive the services needed at the lowest possible energy cost, while also making it easier for the electricity supply sector to balance the grid and make the most of cheap power when it is available.

If everyone starts doing this, it will mean more of us will use renewable electricity and rely less on gas and other energy imports. It could also lead to more efficient use of the national grid which would lower costs for everyone.

We advise that a smart meter gives householders more opportunities to save energy and money, by helping them understand how they use energy. As a result, people can make sensible choices about energy saving options.

Smart meters enable a range of technologies that can help householders reduce their energy use, including apps that give you tailored energy saving advice.

If you already have a smart meter, you may need to have a replacement fitted. This is because your older smart meter may not meet the technical specifications required by the government.

Some older smart meters are not easily switched between suppliers and won’t necessarily allow you to have access to future data services, such as advanced time of use tariffs. SMETS2 smart meters will allow you access to all these services.

If you need to upgrade your smart meter, your energy provider will get in touch with you and will either install a new meter or upgrade your smart meter remotely. Your energy provider will do this at no cost to you. You can use this tool from Citizens Advice to find out what type of smart meter you have in your home and if it’s working in smart mode.

As time of use tariffs become more common, so too will smart appliances, smart controls, and apps. Smart devices enable people to benefit more from this type of tariff, for example, by setting an appliance like a dishwasher or washing machine to run when electricity prices are cheapest. The market for these products is still fairly new and it’s difficult to predict which ones will become popular and have the biggest impact.

Smart meters can also help those households who want to go a step further by exporting electricity from solar panels, from a battery or from their electric car.