Exploring the potential of time-of-use tariffs
In my last , I was pleased to share with you the milestone news about British Gas delivering its one millionth residential smart meter and the transforming role they are playing in giving our customers greater control over their energy consumption. In this blog, I wanted to focus on the potential benefits our customers and country could experience from time-of-use tariffs, which has been made possible through the smart meter roll-out.
So what are time-of-use tariffs and what value can they bring to the UK?
Time-of-use tariffs encourage customers to shift their energy use from peak times in exchange for providing free or cheaper electricity at agreed off-peak periods. This is similar to when you buy a rail ticket and the fare changes depending on the time you travel. Smart meters make these energy tariffs possible because unlike traditional meters, consumption is tracked regularly throughout the day, so it’s easy to charge for energy used according to variable rates.
But what’s the incentive? For customers, shifting consumption away from peak periods can result in savings off of your energy bill. In North America there’s already a strong demand for time-of-use tariffs, so our Direct Energy business offers ‘Free Power Saturdays’ and ‘Pick Your Free Day’ energy tariffs, which have helped customers save approximately 16% on their energy bills by doing energy-intensive household activities like vacuuming on specific days when energy is free.
So why is moving consumption to off-peak hours desirable? Electricity demand surges at peak hours, which puts a big strain on the grid because more energy capacity is needed to meet the demand. For example, in winter demand peaks around 5.30pm when people are beginning to return from work and want to heat up their homes and cook their dinners at a time when businesses are also still open. Switching demand from peak to off-peak hours can therefore make a big difference because it reduces the need to generate additional energy – for instance, power-hungry activities like using the washing machine could easily be shifted to an off-peak time either later in the evening or on the weekend. This can also help mitigate climate change because fewer power stations need to be turned on to meet the demand, which reduces carbon emissions from generation.
Moving consumption to off-peak hours could also abate the growing risk of energy shortages. It’s predicted that the UK will face an energy crunch in the near future because demand is increasing while old power stations are closing at a rate not matched with the building of new ones. So there’s a real risk of energy blackouts. Shifting customer energy consumption to less busy periods therefore has the added benefit of reducing the risk of power shortages and the need to build new power generation capacity to meet peak demand.
Additionally, if there’s a more consistent demand for energy with less spikes, electricity supply becomes more efficient. This can lower generation and transmission costs and make energy cheaper for customers. That’s why it’s possible to charge cheaper rates for off-peak energy.
What we’re doing
We believe that time-of-use tariffs could play an important role in helping our customers better manage and reduce their energy use. Following positive insights gained through our participation in the Customer Led Network Revolution trial in the UK last year - which showed that 94% of participants found it possible to shift their energy use and 95% said they would choose a multi-rate tariff over a standard tariff1 - British Gas is currently trialling its own time-of-use tariff. Learnings from the trial will help us develop a tariff that benefits our customers in the UK market. All of this reinforces our commitment to leading the smart meter roll-out and ensuring that all UK homes are benefitting by 2020.
Read our 2013 CR Performance Review to explore how smart technology is improving our customers’ relationship with energy, or, learn more about the benefits smart meters can bring by watching this video.