Time-of-use tariff: all you need to know
The importance of time-of-use tariffs for the future of energy
Historically, the UK grid has been powered by centralised fossil fuel and nuclear power plants. As we head towards a significant increase in renewable generation, we are also installing a greater number of distributed energy sources like wind turbines, solar panels and battery storage to support this. However, as these renewable energy sources are less predictable and more intermittent, balancing supply and demand is becoming ever more complex.
To effectively address these supply and demand balancing challenges we should try to distribute energy demand more evenly throughout the day.
Time-of-use tariffs have emerged as one of the key tools energy supplies can use to flatten the demand curve and keep the grid in equilibrium.
What is a time-of-use tariff?
Like many other products, electricity is bought and sold on the wholesale market and its prices increase and decrease based on supply and demand. During periods when demand is low, the wholesale price of electricity decreases, particularly during the early hours when fewer people require electricity.
A time-of-use tariff is an electricity tariff where energy suppliers offer different prices at different times of the day. The price differences correspond to changes in demand for electricity referred to as peak (generally 4-7pm, when more people are using electricity) or off-peak periods.
Time-of-use tariffs can be static, with set peak and off-peak slots each day; or dynamic, with prices varying up to every half-hour.
Time-of-use tariffs have been introduced to help flatten the demand curve and take pressure off the grid by using energy at off-peak times. In fact, these types of tariffs encourage customers to use energy when there is less demand on the grid, so rather than paying a flat rate for your electricity, the price you pay reflects the wholesale price of the energy when you use it.
Time-of-use tariffs offer a number of benefits for both the electricity system as a whole and individuals: energy companies offer lower prices at off-peak times so they can better manage demand and make a clean energy grid easier and cheaper to manage; while end customers are incentivised to shift electricity usage outside of peak times, being rewarded for their efforts by lower energy costs.
Citizens Advice surveys show that 20% of consumers would choose a time of use tariff.
Do I need a smart meter for a time-of-use tariff?
Time-of-use tariffs are enabled by digital energy meters, also known as ‘smart meters’, that communicate regularly with energy suppliers via a secure data network. Traditionally, more simple time-of-use tariffs such as Economy 7 didn’t require smart meters, but in order to allow the growth of more dynamic time-of-use tariffs, with different price periods throughout the day based on half hourly settlement, smart meters have become essential.
The government’s initial plan was for energy suppliers to offer all their domestic customers a smart meter by the end of 2020. However, due to Covid-19 restrictions, by June 2020, only 34% of electricity meters in the UK were smart in smart mode.
The UK has recently extended its target of every home having a smart meter, with the latest deadline for suppliers to offer customers a smart meter being June 2025.
Smart meters offer a wide range of benefits, such as receiving more accurate billing and being able to see how your energy usage is distributed throughout the day. They also eliminate the need for manual meter readings; and of course, they offer access to dynamic time-of-use tariffs.
Combining time-of-use tariff with battery storage
Something that could greatly affect the way people use time-of-use tariffs is the ongoing development of battery storage technology. In fact, the main potential drawback of time-of-use tariffs, in terms of reducing strain on the grid, is that they require consumer behaviour changes.
However, by installing smart energy storage in combination with time-of-use tariffs, homeowners can ensure that their battery is charged when there is a lot of renewable energy generated and when energy prices are at their lowest. They can then use this energy at a later time when energy generation is lower and electricity prices are high, without needing to worry.
In this way, customers who have a battery installed can save money by avoiding purchasing energy from their supplier when costs are at their highest.
Capitalising on your time-of-use tariff with Moixa’s GridShare software
GridShare software, the platform underpinning Moixa’s smart energy system, tracks your home’s solar generation and consumption patterns alongside weather forecast data, and your import and export tariffs. Based on all these inputs, GridShare generates a personalised daily charging plan for each customer, which is optimised to cover a household’s electricity needs using the greatest amount of solar and low-cost grid energy available.
When you are on a time-of-use tariff, GridShare is especially beneficial over winter months – when less solar is available – because it allows you to store energy from the grid when the wholesale prices and carbon intensity on the grid are low so you can use it at peak times to maximise your monetary savings and still support more renewables on the grid.
Our latest software release of automated planning also includes Smart Export Guarantee (SEG) tariffs alongside any import time-of-use tariff. SEG is the policy created to ensure that solar panel owners are paid for the spare electricity they send to the grid, a replacement for the Feed-in Tariff which was closed to new applicants in March 2019.
Moixa’s automated charging plan allows smart battery owners to reduce their energy bills and lower their carbon footprint, not only by unlocking the full potential of their solar panels but most importantly, taking full advantage of time-of-use tariffs.
If you already own a smart battery and are on a time-of-use tariff, you can read more about how you can get the most out of your time-of-use tariff in our blog post.
The importance of time-of-use tariffs for the future of energy
Time-of-use tariffs are increasingly important in Britain’s evolving energy system. Particularly if used in combination with energy storage technology, such as smart batteries, time-of-use tariffs could be vital to boost renewable energy use and reduce the UK’s carbon emissions, relieving pressure on the grid by balancing demand while also saving people money.
These technologies will give consumers more control over the way that they engage with their energy supplier, by giving them access to the energy market. No longer will they simply consume energy, they will also produce and trade it, turning into key stakeholders in the smart energy system of the future.
Get in touch
If you are a current Moixa Battery customer and would like to update your tariff information, reach out to our Customer Support Team at [email protected].