Insights and News /

14 March 2013

Do alert-driven, time-of-use tariffs signal time for change at energy suppliers?

With the suppliers' wholesale electricity price driven by half-hourly usage, time-of-use tariffs have the potential to drive down the cost of energy for both suppliers and customers. However, this will only occur if a large enough group of people are willing and able to shift load away from that well known tea-time peak.

The recent launch of the UK's first alert-driven time-of-use tariff was met with a mixed response in the press – with some calling it 'ground breaking', and others 'too little too late'. But the real question is whether this is the shape of things to come.

The Government's target for rolling out smart meters by 2019, and the expected transition into smart grids and smart appliances, will dramatically change the type of tariffs that are technically possible. Day ahead (or even hour ahead?) event pricing will become viable. In addition, intelligent consumption tariffs, whereby a consumer can set a washing machine to run whenever the price of electricity is lowest, will be possible (although additional technology would be required on site for these). As smart meters start to be rolled out en-masse, the potential market for such alert-driven, time-of-use tariffs will increase dramatically, and we'll start to gain a clearer insight to whether or not time-of-use is likely to go mainstream. Personally, I suspect that in a few years we'll have a significant minority of customers keen to benefit from a variety of time-of-use tariffs, but many others choosing not to. If so, those customers that want a time-of-use tariff are likely to be some of the most engaged, and in a market place that has yet to be defined or sized, suppliers will need to consider carefully whether they can afford not to cater for them.

EDF Energy has made a bold first move, working with a small number of first adopter customers to understand what the benefits of this type of innovative tariff could be, and how, practically, to make it work. I can't help wondering – who'll move next?

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