Yahoo Finance Smart meter customers face time-of-day charging plan
Millions of households with smart meters face paying more for their electricity at the busiest times of day under plans by the energy watchdog.
Ofgem is consulting on introducing a “dynamic” energy price cap for households to meet the demand of net zero. The proposals come despite the Government insisting in 2018 that it was a “myth” anyone would face higher energy bills because of the devices.
There are now 32.9m smart meters in UK homes, according to government figures.
The energy watchdog said it would look to “encourage consumer flexibility” by basing the energy price cap around the wholesale costs of electricity throughout the day.
The plans include allowing suppliers to charge more for electricity when the grid is at its busiest, as Britons move away from conventional gas boilers and adopt electric-powered heat pumps and electric vehicles.
Proposals would scrap the energy price cap – currently £1,690 a year – and effectively switch the entire country to a 1970s-style “time-of-use” tariff that charges different prices throughout the day.
This would either be introduced in weekly “time bands” that are divided into more expensive peak and cheaper off-peak periods, or linked directly to half-hourly wholesale market prices.
Ofgem admitted the latter proposal would risk “exposing customers to wholesale price variability” and that “many consumers may struggle to engage with constantly evolving pricing”.
Of particular concern is the effect on energy bills of those using medical equipment. The regulator said it was considering exemptions for those relying on power for such equipment, as well as for millions of electric drivers who charge their cars overnight.
Consumers would be given incentives to take advantage of lower prices and avoid using electricity when costs go up in both scenarios.
Experts warned against the effects of surge pricing on vulnerable groups such as the elderly who typically have the heating on for more time during the day.
Simon Virley, head of energy and natural resources at KPMG UK, said: “As we look to what a future retail energy market looks like, it will be key to balance proportionate consumer protection with incentives for investment and innovation in a smarter energy system that benefits all consumers.”
Simon Francis, of charity End Fuel Poverty Coalition, argued that a new dynamic pricing system for electricity should not put customers off from using energy when they need to.
He said: “People shouldn’t be penalised and dis-incentivised from putting the heating on when they need to.
“Smart meter systems need to actually be smart and work for this to actually happen,” he said.
There are currently some three million smart meters that are estimated to not be working properly, according to the National Audit Office.
Ofgem said lower costs under dynamic pricing would be largely dependent on “weather patterns” with more renewable energy from wind and solar farms produced when it is “particularly windy or sunny”.
It went on to say that the current energy price cap faced becoming “unsustainable” as suppliers cater to customers who have increasingly varied energy needs thanks in part to the uptake of EVs, heat pumps and other net zero technologies that use electricity throughout the day.
No decisions have yet been made and the regulator is currently seeking the views of energy suppliers about the proposals.
Ofgem said “different approaches” would have to be taken for gas and electricity as dynamic pricing for gas did not have the same benefits.
The report added that any dynamic pricing model “would likely apply only to electricity and could only be applied to customers with smart meters”, meaning around 35 million households with the devices could be forced on to the new model.
Ofgem also said it would look at replacing the energy price cap with a ban on suppliers having so-called loyalty penalties by offering cheaper tariffs to lure in new customers, while charging existing customers higher prices.
The proposals come despite repeated assurances that smart meters would save money and not lead to bills going up. In September, the Government said: “Smart metering will generate total bill savings to households of £5.6 billion over the course of the rollout”.
Just under a year ago Ofgem greenlit measures that effectively pave the way for dynamic pricing on smart meters by sending suppliers half hourly updates on household energy usage.
Tim Jarvis, Ofgem’s director general of retail and markets, said: “While the [existing] price cap played an important role in protecting consumers from the loyalty penalty that existed before its introduction, the energy market is changing as we move to net zero and we recognise the systems we have in place may need to change too.
“We’re looking in detail at the elements of the price cap that have worked well and the challenges we’ve identified in recent years, while also considering how a wide range of future consumers will use and pay for energy to make sure we develop the right measures that will protect and benefit consumers across the board.
“We will continue to work with government, industry, consumer groups, charities and the public on the future of pricing regulation. Our aim is to ensure the market works for everyone.”
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Richard Neudegg, director of regulation at energy comparison site Uswitch.com, said: “Almost three years on from the start of the energy crisis, we’re yet to see a full return to competition in the market – and the price cap must bear some of the blame.
“We support Ofgem’s view that the price cap needs reform, given it has proved to have significant limitations.
“The devil will be in the detail, but it is vital that any changes made to the cap creates conditions to bring back better deals for consumers, and also offers targeted protections to the most vulnerable.”
A Government spokesman said: “The price cap is an important measure for ensuring that energy prices are fair.
“We welcome Ofgem’s consultation on ensuring customers remain protected in the longer term as the energy market evolves.
“It follows our call for evidence launched last month to seek views on how energy tariffs can help families access cheaper deals.”
