By 2025, smart meters will transmit meter readings to your energy supplier every half hour by default, rather than once a month or once a day. This change is part of updates the energy regulator, Ofgem, is introducing to help make the electricity grid greener. Here we explore what’s happening and what the changes mean for customers.
National electricity usage goes up and down throughout the day. It’s highest when millions of us are all doing the same sorts of thing around the house – for example, boiling the kettle in the morning, or coming home in the evening and switching on lights, cooking dinner, and watching TV. And as you might expect, usage drops right down over night.
Energy suppliers forecast how much electricity their customers will use throughout the day, and make sure they’ve sourced the right amount to match it. If they’ve bought too much, they have to sell it. And if they’ve sourced too little, they have to buy more. Energy is traded in half-hourly windows, and prices rise with demand. This means energy suppliers buy and sell power at different prices throughout the day.
Even though energy suppliers and generators buy and sell electricity in half-hourly windows, household energy bills have traditionally only been calculated using monthly readings or estimates. Ofgem’s introduction of half-hourly settlements for domestic customers will give energy suppliers a clearer picture of how much their customers’ electricity usage costs them at different times. In turn, this will incentivise energy suppliers to develop innovative new services that support people to shift their usage to times of lower demand.
How will more frequent electricity readings help make the electricity grid greener?
Monthly meter readings and estimates mean that energy suppliers and network operators don’t have a detailed picture of how much electricity people actually use throughout the day. They have to rely on trends and forecasts to make sure enough electricity is being generated. Peak electricity demand is often met by large-scale generators that can be switched on quickly, such as polluting coal and gas.
Smart meter readings taken on a half-hourly basis help provide an accurate view of how much electricity people use, which will help make sure electricity supply and demand are matched more closely. This is a vital step towards creating a flexible, efficient grid that is better able to make the most of electricity generated from renewable sources.
How can more frequent electricity readings help us use electricity more efficiently at home?
Many people already use the information provided by their smart meter to save energy. A recent survey by Smart Energy GB found that 94% of households with a smart meter have implemented at least one energy saving habit, with almost 40% saying the change was directly inspired by the information provided by their smart meter.
However, making the whole electricity grid more efficient also means levelling out some of the peaks in electricity demand, so that we don’t have to rely on fossil fuel generators. This means shifting some of our usage into off-peak times.
The changes that Ofgem are introducing will benefit households and lead to estimated customer bill savings of between £1.5 and £4.5 billion. This is because, by enabling energy suppliers to directly reduce their own costs if customers shift their usage, the regulator expects that suppliers will offer innovative new tariffs that incentivise people to use energy at cheaper times.
What types of tariffs could energy suppliers offer?
Energy suppliers are already beginning to offer smart time-of-use tariffs with lower off-peak rates. As technologies such as electric cars, smart appliances and home battery storage become more widespread, suppliers would benefit from providing more tailored, flexible energy tariffs.
For example, people could charge batteries or EVs for less at times of lower electricity demand, then use the electricity or even be paid to export it back to the grid at times of high demand.
The current market, where energy prices are extremely high and volatile, means that these kinds of tariffs are difficult to offer as they would expose suppliers and potentially their customers to these risks. But Good Energy has offered ‘time of use’ tariffs in the past, and we believe flexible tariffs where customers are an active part of a clean energy system, are a vital part of the future.
Will customers face penalties for using electricity at peak times?
The idea is to reward people for shifting their usage, rather than punish them for not doing so. However, customers that want to choose ultra-flexible smart tariffs may have some higher rate periods at peak usage times – just as customers on traditional Economy 7 tariffs have higher day electricity rates.
Will customers have to switch to smart time of use tariffs in the future?
Ofgem have said they “expect suppliers to offer customers the choice” of whether they take up half-hourly tariffs. Not everyone will be able to shift their usage enough to really benefit from smart time of use tariffs. There will always be more traditional tariffs available for people that want them.