Time of Use Tariffs: Saving the UK Grid?

If you’ve spent much time trying to find the best energy deal, you may have come across the term ‘time of use tariffs’. It’s more exciting than it sounds - if you’re interested in Britain’s evolving energy system.

Energy suppliers are falling over themselves to launch more innovative tariffs to tempt savvy customers. Just last week, Good Energy announced its ‘Zap Flash’ tariff, with free EV charging when there’s excess power on the grid. So how do these tariffs work, and why do they have the potential to change the grid forever?

What is a time of use tariff?

A time of use tariff is an energy plan with different unit prices at different times of day. It could be static, with set peak and off-peak slots each day; or dynamic, with prices varying up to every half-hour. Rates in a time of use (ToU) tariff more accurately reflect wholesale prices - when electricity is most in demand, or most abundant on the system.

The UK’s first ToU tariff was launched by Green Energy UK in 2017. Its TIDE tariff offers various rates throughout the day, with overnight rates more than 20p/kWh cheaper than those at peak times. Since then, ever more suppliers have produced dynamic pricing plans. In a Citizens Advice survey, 20% of people said they would choose a ToU over a flat rate tariff.

But why are time of use tariffs so important? First we have to look at the national grid...

The grid under pressure

Demand for electricity varies significantly throughout the day, with a small spike in the morning and a much bigger spike in the early evening:

Data source: Elexon.

Historically, the UK grid was powered by centralised fossil fuel and nuclear plants. As we shift to clean sources, like solar and wind, these are decentralised and intermittent - which makes balancing supply and demand ever more complex.

When demand spikes, National Grid may have to call on generators to fire up at short notice. This is expensive (a cost ultimately borne by consumers) and polluting, as most such generators are fossil fuel powered.

To combat a closing gap between supply and demand, we can try to reduce demand through energy efficiency, install more generators - or attempt to distribute energy demand more evenly throughout the day.

What are the benefits of time of use tariffs?

Time of use tariffs promise a number of benefits for both the electricity system as a whole and individuals:

• Timed pricing can encourage people to shift electricity usage outside of peak times. ToU tariffs, adopted at scale, could help to flatten the demand curve, making a decentralised energy grid easier and cheaper to manage.
• If you have a home battery, you can artificially shift your usage by charging up the battery at off-peak times and then discharging at peak times when you need it. This not only helps the grid, but with a ToU tariff you can cash in on the savings - buy cheap, use peak.

Drawbacks of time of use tariffs

The main drawback of time of use tariffs, in terms of reducing strain on the grid, is that they require consumer behaviour changes.

Not everyone will be willing or able to do this. Some appliances are easier to schedule to run at off-peak times (e.g. dishwashers or EV charging) but other activities are difficult to shift (e.g. heating or cooking). Customers unable to stay on top of when their electricity demand spikes risk being penalised by ToU tariffs.

Realistically, the only way to benefit from them is through automation and smart devices: scheduled EV charging, smart heating, price notifications and warnings etc.

Do you need a smart meter?

Yes, to access a modern time of use tariff, you will need a smart meter. This will enable you, and your energy provider, to view your usage on a half-hourly basis. If you contact your energy supplier, they can fit a smart meter for free (though you may have to wait a while). Unfortunately, first generation smart meters (mostly installed before Feb 2019) lose their smart functionality if you switch supplier - a fix for this will reportedly be rolled out by this summer…

The exception is for Economy 7 or 10 tariffs, as these require their own specialist split peak/off-peak meter.

Example time of use tariffs

Only a few supplies offer time of use tariffs in the UK, and often they are still in ‘beta’ phase. Some examples on the market are:

• Economy 7/10,
• TIDE from Green Energy UK,
• Agile from Octopus Energy.

Economy 7 was introduced to encourage people with electric heating to charge storage heaters overnight, when energy from coal or nuclear power stations would otherwise be wasted. It requires a specialist Economy 7 meter and storage heaters, which are both inefficient and not very user friendly. Economy 7 gives 7 off-peak hours overnight, and Economy 10 gives 10 (the exact hours can vary by supplier). These are becoming less popular and will likely be superseded by smart meters and ToU.

Green Energy UK’s TIDE tariff appears to be back on the market after a brief hiatus. Its prices vary through a number of bands - or ‘tides’ - each day. Here are the current rates for our local area (April '21):

Agile Octopus is a dynamic ToU tariff. Each day, half-hourly prices are set based on day-ahead wholesale market forecasts. There is a price cap to stop spikes being too expensive and you can be alerted to price plunges (which can even go negative). The graph below gives a rough idea of the distribution of unit rates across a year:

Data source: Octopus.

Obviously, a dynamic tariff like this is a lot trickier to base your usage around - unless you use automation. But if you do so, via a connection tool like IFTTT, you can set smart devices to adjust consumption in response to price signals.

Tariffs for EV drivers

Many think that the shift to electric cars will herald mass adoption of ToU tariffs. The reason for this is twofold - nationwide demand for EV charging could cripple the grid if it all happens at peak time, and it makes sense for drivers to save money by charging overnight when the car is stationary anyway. That’s one of the reasons why the OZEV grant is only available for smart chargers, so this functionality is built in.

Indeed, many suppliers already offer a cheaper night rate for EV drivers. Most of these use a renewable energy mix (lowering driving emissions further) and some have other benefits, such as reduced charger installation or free miles on a charging network. Zap-Map has a good comparison of current EV tariffs.

Other innovative tariffs

If timing and scheduling doesn’t appeal, there are a couple of other tariffs pushing the boundaries of smart tech:

• OVO has announced a ‘type of use’ tariff for EV drivers, offering a cheaper rate for charging your car no matter when you do it.
• Octopus and Tesla have teamed up on the Tesla Energy Plan for customers with solar PV and Powerwall. This gives highly competitive and matching import/export rates, in exchange for Tesla’s algorithm controlling your battery.

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