Time of Use Tariffs

Is “Time of Use Tariffs” for homes the answer?

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If you live in United States of America, peak electricity demand will likely happen at times such as when everyone is tuning into the Super Bowl, or when the temperature outside reaches unbearable levels in the summer and everyone switches on the air cons. In the UK peak times will likely happen when one of the British football teams are in the World Cup and/ or when temperatures hit extreme lows and everyone turns on their heating.

Basically system “peaks” (and associated system peak prices) tend to happen when everyone decides they need electricity.

To help encourage people to NOT use electricity during peak periods the network operator(s) tend to level charges on the Licensed Electricity Suppliers discouraging them (actually their customers) to not use electricity during peak periods.  What happens is that during peak periods electricity prices increase, not just as a result of electricity suppliers having to buy more expensive electricity from certain generators, but rather as a result of network operators levying system charges on Electricity Suppliers that are in effect penalty charges (in the UK these are called Triad charges).

Now in most cases an Electricity Supplier will offer you a flat rate electricity tariff for your home based on a typical domestic usage profile.  This may not actually reflect how you use electricity but rather will reflect a typical domestic profile of electricity use.  That means that your tariff is not specific to you, but rather generic. It will therefore take into account charges that relate to peak system use based on a typical profile of use (even if you do not use electricity at peak times).

If instead of offering you a tariff based on a typical profile of use, the Electricity Supplier offered you a “Time of Use” tariff, a tariff that has different prices for different periods of use, then you could turn on and off devices within your home in order to avoid network peaks i.e. Peak Clipping.  By doing this you could reduce your energy costs significantly as well as helping to reduce the need to install more generating capacity in order to meet system peaks.

The problem we have here in the UK is that no supplier currently offers “Time of Use” electricity tariffs for domestic properties.  The nearest things to this is where an electricity supplier may offer to use your installed Solar PV and battery store in combination with a transfer switch to peak clip (turning on and off the supply to your home via your own energy store) but this is an expensive way of doing Peak Clipping (high upfront costs and the ability to reduce cost depends on your own electricity store and their ability to remotely switch your supply).  If you are doing this without subsidies your payback for the equipment needed will be near 15 years.

With smart meters the ability to monitor electricity use on a half hourly basis is now available.  Suppliers know when system peaks will likely occur, thus this being the reason they can offer “Time of Use” tariffs to business owners (called “Seasonal Time of Day” tariffs).

Time of Use tariffs offered to domestic customers would allow domestic customers to take action to reduce their electricity use during network peaks (turn things off, using battery operated kit etc), in turn helping customers cut their own electricity bills as well as helping the network operator to balance system demands (reducing the need to upgrade networks and installing more generation capacity – an overall cost saving to the end consumer).

So given this is a win: win for everyone why don’t electricity suppliers offer a “Time of Use” product to domestic customers?

The reason is perhaps that although Smart Meters have been suggested to be a game changer in respect to how the electricity industry will operate, the reality is that they have NOT been fully utilised i.e. they are used to gain more accurate payments but nothing more. Introducing segmented tariffs which require electricity suppliers to bill against set periods of use would be more complicated.  Estimating costs in respect to use may be more difficult.  Getting the data to do all of this may be more problematic than most would like to suggest.

So offering a flat rate tariff priced on a worse case scenario of use (typical domestic profile) is perhaps a safer (easier) thing to do. Thus the reason there isn’t a rush to offer a “Time of Use” tariff at the moment.

Our advice is that if you do find a “Time of Use” tariff on offer, before jumping with joy and signing on the dotted line, think first about how you will best make use of the low cost periods in order to avoid the high cost periods. Time of Use tariffs can be a great thing if used properly.

Don’t worry, you have plenty of time to think about this as there is none on offer at the moment.





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