Smart tariffs can save you money

Smart tariffs offer variable pricing for electricity, helping you save money by changing your behaviour and consuming energy at times of lower demand.

You may have noticed that, whilst the government’s price cap on energy bills is in place, it does not seem like there’s a way to save money by switching energy suppliers – but there is!

Most energy companies, and energy bills, state “You’re already on the cheapest similar tariff” however, these statements are misleading because dynamic tariffs are not included in the comparisons.

The way energy is priced is evolving and new, smart tariffs are coming online which offer different prices at different times of day.

Smart tariffs come in several different versions:

• Dual rate – the most basic form of smart tariff with a day rate and cheaper night rate
• Time-of-use – tariffs with 2 or more rates per day
• Real-time or dynamic tariffs – where the unit price varies every half hour according to the wholesale price of electricity, often based on day-ahead market prices, so that you have time to plan your energy usage.

Dual rate tariffs include the old Economy 7 and 10 tariffs, which offer cheaper rates for electricity during the night. They offer distinct advantages over a standard tariff if you have electric heating or other energy intensive appliances which you can run during the night.

Time-of-use tariffs are becoming far more popular, especially with the increase in Electric Vehicles.

Real time, or dynamic tariffs are still quite experimental in the UK. Octopus Energy is currently the only supplier offering a dynamic electricity tariff, which they call Octopus Agile.

In theory, dynamic tariffs place a lot more risk on the consumer because energy prices can spike dramatically between 4 and 8 pm when people are using the most power, meaning your price per kWh could reach up to £1! That’s a huge leap, which would make a big impact on your bill, if you consider that other tariffs offer a fixed price of 33p/kWh.

However, while the price cap is in place Octopus have capped their Agile price at 35.06p/kWh and, since the variable price often drops under 15p/kWh in the night, this means that the average price per unit is less than every other tariff on the market. As a crude example, the average half-hourly price on Octopus Agile between Jan 16 and April 16 was just under 27p/Kwh.

By our calculations, the majority of UK households could save more than 15% on their electricity bill by switching to Octopus Agile, without even changing their behaviour.

However, when the price cap is lifted these savings could soon disappear and would be replaced with additional costs if consumers do not avoid usage at time of peak demand. But Octopus will warn you before this happens and make it very easy to switch to a fixed or dual-rate tariff, so switching now still makes a lot of sense and will save you money. Plus, Octopus will give you (and us) £50 off your bill just for switching making the savings even more attractive. Visit the Octopus Energy website, enter your postcode and follow the steps to get a quote and start saving.

If you’re looking to save money on your energy bills switching to Octopus is very easy and takes less than 5 minutes. They can’t switch you directly onto Octopus Agile so you’ll need to switch to their fixed tariff and then transfer to Agile once you’re a customer, but that’s very easy – all you need to do is email hello@octopus.energy and tell them to switch you to Agile as soon as your account is transferred.

Smart tariffs are the future of electricity pricing. Traditional energy companies in other European countries that have not yet managed to deliver dynamic tariffs are losing customers in droves to new market entrants, because consumers like smart tariffs – and it’s not hard to see why.

As supply and demand vary in the grid, variable pricing is not only a powerful tool to help the National grid keep things balanced, but a practical motivator to encourage consumers to change behaviour which enables them to save money.

As the success of the Demand Flexibility Service experiment demonstrates, people like controlling their energy use and are more than willing to get involved in helping balance the grid, especially when there are financial incentives. During the DFS trials 1.6 million households saved over 3,300MWh of electricity during peak times.

As mentioned, there are risks with dynamic tariffs – as the Griddy story from Texas illustrates – but while the UK price cap is in place consumers are protected and can make significant savings from switching to a smart tariff.