Ofgem wants more information about how consumers might react to the option of using real-time energy pricing, to build its business case for moving to half-hourly settlement for all customers and decide when and how to make the change.
Wholesale power prices vary dramatically, both between peak and off-peak times and depending on other factors such as the weather. But that is not directly reflected in domestic bills. Instead, customers are allocated to one of a handful of typical profiles and billed on that basis.
This is inefficient because customers cannot take advantage of low prices (unless they are on an ‘economy 7′ tariff) and adds to bills because suppliers make sure their prices are high enough to absorb the variation.
The advent of smart meters means all customers can move to ‘half hourly settlement’, choose to pay real prices and shift their usage to cheap times – a move that will reduce costs across the board.
Ofgem has already decided that there is a case to make the change. It will help expose suppliers to the true cost of supplying electricity to their customers, it says, and more efficiency in generation could affect the costs of future network development. Now it wants to know when and how it should happen.
In a call for evidence the regulator wants to know: what consumers know about the differing price of electricity at different times; whether and how they might actively or passively (via their supplier) shift their energy use; whether they might take on technology that allows them to be a dynamic customer; and how they engage with more complex tariffs. The aim is to build the business case.
The information will also be used later to consider how to protect vulnerable customers who cannot react to price signals. Ofgem says evidence from trials suggest at least some consumers do have an appetite to engage, even where they are in a vulnerable situation, including with more complex dynamic ToU tariffs.
Download the full call for evidence. The call closes on 29 March.