Ofgem launches project to pave the way for cheaper off-peak electricity

Press release

Publication date

Industry sector

Supply and Retail Market
  • Smart meters could help customers cut their bills if they use electricity when it is cheaper to produce 
  • Ofgem will now reform industry arrangements to encourage next- generation time-of-use tariffs so customers with smart meters can get this benefit 
  • These reforms will help consumers get greater control over their energy costs, building on Ofgem reforms for a simpler, clearer, fairer market

Tariffs where consumers pay less for using electricity off-peak or when it is cheaper to produce, are one step closer from today. 

The national roll-out of smart meters to homes is due to start in 2015. These meters will send actual consumption data directly to suppliers, meaning consumers will see an end to estimated bills. The meters will come with a display unit showing consumers the key information they need to better manage their energy consumption.
 
Smart meters also record consumption every half-hour, and with the customer’s agreement, the supplier can obtain these half-hourly readings. This opens the door to more advanced time-of-use tariffs where suppliers can charge customers less for electricity when it is cheaper. This could be, for example, at times when there is more renewable electricity available, or outside peak times.  

To encourage the next generation of time-of-use tariffs, Ofgem will reform industry arrangements for working out how much electricity households use at different points throughout the day, and how much suppliers pay for that electricity. This will encourage suppliers to offer tariffs that cut charges for consumers using electricity when it is cheaper. Ofgem will now lead these reforms so that new industry charging arrangements are defined before the start of the national roll-out.

Rachel Fletcher, senior partner, markets, Ofgem, said: “Smart meters will help consumers to have much more control over when they use energy. They also make it far easier for consumers to reduce their bills if they use electricity outside peak hours, or at times when electricity is cheaper to produce. 

“However, to make sure consumers get these benefits, we must reform industry charging arrangements which have been in force since the 1990s. This is so that more advanced time-of-use tariffs can be brought in. Taking these steps now means that we can make the energy market work even better for consumers, now that our reforms for a simpler, clearer, fairer market are in place.”

Secretary of State for Energy and Climate Change Ed Davey said, “I welcome this programme from Ofgem. Alongside the roll-out of smart metering, it will reform back-office electricity market processes that are vital to help deliver a more modern, competitive energy market for consumers.”   

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Notes to Editors

1.  Ofgem has today launched a project to reform the industry ‘settlement’ arrangements. Settlement places incentives on suppliers to buy energy to meet what their customers consume in each half hour of the day. Currently the amount of electricity households use every half hour is estimated. This is done by taking total energy consumption from consumers’ meter readings and then allocating that usage between the half-hour periods throughout the day, based on the usage profile of typical consumers. However as smart meters can record actual consumption each half hour, there will no longer be a need to estimate it. 

Reforming settlement in this way will give suppliers a stronger incentive to offer new time of use tariffs which encourage consumers to use energy when it is cheaper, and to cut back at peak times. Offering cheap off peak energy is one way they might do this. There would be no obligation for consumers to take up time of use tariffs but there could be big savings for those that can be flexible about when they use energy. A launch statement for the project has been published on our website. 

2. The roll-out of smart metering presents an opportunity to make retail energy markets work better for consumers. Ofgem is putting in place the necessary reforms through its Smarter Markets Programme. Our settlement project forms part of this programme. Further information on the Programme can be found on our website. 
 

3. Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas and Electricity Markets Authority, the regulator of the gas and electricity industries in Great Britain. The Authority's powers and duties are largely provided for in statute, principally the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the Energy Act 2004 as well as arising from directly effective European Community legislation.

 
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