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Plans by Ofgem: Customers with smart meters to be subject to time-of-day pricing

The energy regulator is seeking public input on potential changes to price caps, including the introduction of a more dynamic cap linked to the timing of energy usage.

Individuals in the UK with smart meters may soon be subject to varying price caps based on the time of day they consume electricity, according to the government’s energy regulator. Ofgem recently launched a consultation on revising the existing cap, considering the possibility of implementing a more flexible pricing system with rates that depend on the time of use to promote consumer adaptability.

This proposal stems from the country’s transition to eco-friendly technologies like heat pumps, solar panels, and electric vehicles, prompting Ofgem to explore alternative pricing structures. The regulator has presented three initial options for consideration, one of which includes replacing the standard cap with a dynamic model tailored to specific factors like vulnerability, along with introducing market-based price protections.

By the end of 2023, 32.9 million households in Great Britain had already adopted smart meters, comprising 61 percent of all domestic meters.

Encouraging Changes in Energy Usage

The current price cap is fixed at £1,690 per year, based on average household energy consumption, to ensure fair pricing for customers on standard variable tariffs. With the gradual shift towards electricity consumption and the adoption of time-based tariffs, Ofgem anticipates the need for a more adaptable pricing structure to accommodate varying consumer needs.

Furthermore, Ofgem foresees the introduction of half-hourly settlements in 2025 as a driving force behind the rising popularity of time-based tariffs. These settlements will allow consumers to benefit from cost-effective energy during periods of high renewable energy availability, such as on particularly windy or sunny days.

Adapting to a Changing Energy Landscape

Tim Jarvis, Ofgem’s director general of retail and markets, highlighted the evolving energy market driven by the net-zero agenda. He acknowledged the role of the current price cap in protecting consumers but emphasized the need to adapt existing systems to align with changing requirements.

Jarvis emphasized the importance of reviewing successful elements of the price cap while addressing recent challenges, all while considering diverse consumer preferences and payment methods to ensure broad consumer protection and benefits.

Overall, Ofgem aims to collaborate with various stakeholders to enhance pricing regulations and ensure a fair and efficient energy market for all consumers.

Households Embracing Energy Efficiency

Many UK households have already started reducing their electricity consumption in response to Demand Flexibility Service (DFS) events activated by the National Grid. During these events, energy suppliers incentivize smart meter users to voluntarily reduce their electricity usage to support grid stability.

DFS tests indicated that users could receive compensation through points, rewards, or monetary incentives for participation.

The National Grid resumed testing DFS last winter, conducting multiple tests between November and December 2023, with additional tests scheduled in early 2024.

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