What customers really think about time of use tariffs
These tariffs mean people pay cheaper rates for electricity at certain times of day. But they don’t work for everyone
Time of use (ToU) tariffs allow people to pay cheaper rates when demand for energy is lower, for example at night time when people are asleep. They have been around for decades to help manage the amount of electricity being moved across the pipes and wires to your house. And now they’re back on the energy policy agenda, driven by the installation of new smart meters across Great Britain.
The energy industry can learn a lot from the experience of legacy ToU tariffs, such as economy 7, economy 10 or dynamic teleswitching. That’s why we commissioned research into customers’ experiences of these ToU tariffs, to shape public thought going forward. This is what we found.
These tariffs aren’t going to work for everyone
Our research found fewer than 50% of customers on these tariffs were trying to use their electrical appliances during off-peak times. There are particular characteristics of people who are less willing or able to shift their demand, including people with high incomes, households with children or households with more people.
In previous work, we’ve found that automation can help people take advantage of ToU tariffs. But there are still reasons why, despite automation, people might still struggle to benefit. Almost two fifths (39%) of respondents said they didn’t use electrical appliances at off-peak times for practical reasons, like safety or noise.
The introduction of smart appliances will make it easier for people to benefit from a ToU tariff. But we can’t assume people will always use them optimally, especially if there are practical barriers. Tariff designs need to reflect how people behave as well as what the system needs.
Even motivated consumers will struggle without better support
The research also found that while people understand they pay a different price at off-peak times, often people couldn’t say when those times were. Even those who said they knew were sometimes making assumptions, rather than knowing for sure.
Around half of people we surveyed think they’ve received information about their off-peak tariff times, but after probing few could recall any detail of when and how this information was received. About 1 in 3 say they haven’t received or ever asked for this information.
People can’t meaningfully make savings without knowing when their energy is the cheapest.
So, more work needs to be done to help people benefit from complex tariffs like these. This could be by re-designing offers based on how people behave or what they want, or by giving them information regularly and in ways they understand.
If left unchallenged, other problems with ToU tariffs will persist
Legacy ToU customers face additional barriers to switching. Some of these will be addressed by the move to smart meters — but others could continue. For example, people may still struggle to use price comparison sites reliably, especially when they’re trying to estimate how much a ToU tariff might cost them over a year.
It’s going to be even harder for people to make the right decisions when tariffs could change day to day — very few people have the time to engage with such complex information. This means suppliers or third parties need to translate it in a simple and intuitive way. It won’t be easy, but if ToU tariffs are to become widespread, it’ll be necessary to trial different methods to see what works best for consumers.
We’d encourage the energy industry to use customer insights when taking this forward, including collaborating with customers at the development and testing stages.
Today, we see government ready to step in when energy markets don’t work. The new opportunities smart meters present are a chance for industry to innovate and protect consumers early on.
In the meantime, we’ll be writing to energy suppliers asking them how they plan to meet Ofgem’s supplier-customer communication principles, specifically for legacy ToU customers. We’ll also begin to gather best practice from those suppliers offering smart ToU tariffs right now.
A version of this blog will also appear as an article in Cornwall Insight’s Energy Spectrum.
