Comparing smart tariffs – could it be smarter?

By the end of September 2019, 15.6mn households had a smart meter installed, increasing access to consumption information and monitoring. While only a small proportion of households currently use half hourly tariffs (and there isn’t currently market wide half hourly settlement of domestic smart meters), the industry is widely discussing the application and benefits of time of use propositions to encourage a shift in consumption away from the peak period.

There are currently eight smart-enabled tariffs on the market, which require customers to have a smart meter installed and offer varied pricing structures based on the time of day. Six of the tariffs on the market offer a two-rate pricing structure which consists of a peak time with a higher unit rate, and an off-peak time which is usually for a set overnight period. There are only a few variations to this – Bulb’s Smart tariff and Green Energy UK’s Tide have a three-rate pricing structure, while Octopus’ Agile tariff has dynamic half-hourly pricing, with the next 24 hours of pricing released at 4pm each day.

While varied pricing structures allow customers to strategically shift high-consumption habits, such as charging an electric vehicle, to occur during the cheaper, off-peak unit rate, there is no easy way to compare the different propositions on offer. Price comparison websites (PCWs) currently compare a tariff’s standing charge and unit rate against a consumption profile, generating one annual price. For a smart-enabled tariff, the pricing will depend on the individual’s consumption pattern across the different time periods and their ability or willingness to shift energy usage. The question is raised as to what happens if the consumer doesn’t follow the change in consumption as expected – would another, more standard tariff have been cheaper?

These questions will only be exacerbated as the work to implement faster switching and half hourly settlement in the domestic market is completed. These projects should significantly increase the ability for households to engage with the competitive market, and for smart tariff offerings, but will further increase market complexity and the need for clear information from routes to market such as PCWs.

PCWs do not currently have access to individual’s consumption data to allow for an accurate comparison, although these issues have been raised through the Midata programme. Midata is currently under consultation and funded under the Retail Energy Code for energy suppliers and has the potential for regulated data sharing with third party intermediaries, such as PCWs and automated switching services, to allow for accurate estimates and a swifter switching process. While the Midata programme has encountered delays, progress is expected to be made this year.

In the meantime, some businesses have developed technology to circumvent the smart meter rollout, including energy saving and switching assistant Loop, launched in October 2019, which has a device that clips to traditional meters and monitors usage and suggests tariffs. Automated switching provider Labrador, acquired by DigitalAPICraft this month, also operates similarly by tracking energy usage with its ‘Retriever’ device. While these technologies can aid customers in comparisons for the short-term, a large-scale change in the intermediary market would allow consumers to more visibility in the propositions they’re taking up.

BEIS has recognised the potential barriers facing smarter time-of-use tariffs on PCWs and so is currently tendering for a project to examine how this could be delivered in the market. This is a timely move by government as, given the importance of PCWs to the competitive retail market, their ability to support smarter tariffs will be key to full market acceptance. 

You may also be interested in …

Service | Domestic tariff report

Training | GB energy retail competitive landscape

Service | Domestic energy sales channels report 

Related thinking

Home supply and services

Highlights from our Energy Supplier Compliance webinar

As part of our Energy supplier compliance portal service, we run a webinar every 6 months which looks at key updates.    Our latest webinar looked back at the decisions made under Ofgem’s financial resilience plan. This included strengthening milestone assessments and introducing additional reporting requirements. It also decided on the short-term interventions...

Energy Market Design

Can we fix the wholesale energy market this winter to lower prices and should we want to? 

The Review of Electricity Market Arrangements (REMA) is intended to discuss and decide on appropriate market arrangements for 2035 in a Net Zero, low marginal cost, renewables-dominated market. It is unlikely it has the scope or capability to intervene in the market arrangements ahead of this winter. Therefore, some new interventions...

Home supply and services

What is the Market Stabilisation Charge?

The Market Stabilisation Charge (MSC) requires all domestic suppliers acquiring a customer to make a payment to the supplier that is losing the customer. The charge applies to all switches, so suppliers are not obliged to inform competitors which tariff the consumer switched to or from. It is comprised of...

Commercial and market outlook

Ofgem outlines thinking on protecting credit balances and RO payments

This article is an extract from our Energy Spectrum publication issued on Monday 25 April. If you are interested in receiving critical policy, regulatory, market and transactional developments across the energy sector, and would like a free full sample of Energy Spectrum, please request a copy here. You only need...

E-mobility and low carbon

Expanded guidance provides more clarity on electricity supply to EVs

In a burgeoning EV-centric world, Ofgem’s updated guidance on supplying electricity to electric vehicles (EV) should provide clarity for many organisations around the supply arrangements in place for different charging scenarios. Due to their mobile nature, EVs don’t fit in with the legislative model that defines an electricity consumer by...

Home supply and services

37 suppliers remain in domestic energy market

2021 has seen 14 domestic supply market exits to date, including the most recent three companies to use the Supplier of Last Resort (SoLR) process on Wednesday 29 September 2021: Igloo Energy (0.59% market share), Symbio Energy (0.04% market share) and ENSTROGA (0.09% market share). In September alone, nine suppliers...

Business supply and services

Have we given up on competition in the retail market?

“Q: How does 2pm on Wednesday sound? A: Assuming we still have a functioning energy market that'd be great”.  It’s not really what you expect to see in an email at 5pm on a Friday when trying to arrange a call. But then these are certainly not normal times. In this Energy Perspective, we will...

Regulation and policy

How will consumers take to Market-wide Half Hourly Settlement?

Ofgem published its decision to implement the move to Market-wide Half Hourly Settlement (MHHS) on 20 April. This confirms plans to move to new settlement arrangements over a four and a half year time period, with the Elexon-led Design Working Group’s Target Operating Model to be used as the blueprint. Meters...