Ofgem claims changes will save consumers up to £4.5bn by 2045
How to keep energy bills down amid cost surge
Three major energy companies – Scottish Power, EDF and Octopus Energy, who have 11 million customers between them – this week backed plans to introduce dynamic pricing arrangements whereby smart meters automatically send regular updates to suppliers about household energy use.
At peak times when energy use is highest, such as early evening, costs would be higher for consumers, while prices would fall for those using energy overnight.
Experts have suggested that the proposed changes to pricing would see struggling households forced to limit their energy use during peak periods.
But Ofgem, the energy regulator, insists the shift to “time of use” tariffs, known in the industry as the market-wide half hourly settlement (MHHS) since smart meters will be programmed to provide updates on energy use every 30 minutes, will “enable a more efficient, flexible and greener energy system”.
The regulator claims it will save consumers an estimated £1.6bn – £4.5bn by 2045.
Backing the changes this week, Greg Jackson, Octopus Energy’s chief executive, said it would be “extremely good for consumers”.
However, founder of TheEnergyShop.com, said surge pricing could make energy “unaffordable” for people at peak times.
He told the Daily Mail: “Some households will inevitably have power outages during peak times when energy potentially becomes unaffordable. We already see extraordinary swings in the price of energy and this is likely to get worse.”
Ofgem has been exploring the potential for surge pricing since 2017. Last April, the regulator made the decision to go ahead with the proposal but said it was up to the industry to implement it and gave energy providers until October 2025 to do so.
It is hoped that surge pricing will place incentives on suppliers to offer new tariffs that encourage more flexible use of energy and help consumers to lower their bills.
Ofgem says this could include charging an electric vehicle overnight to make use of lower prices, for example.
A spokesperson told The Independent: “This major system upgrade is a significant milestone on Britain’s path to net zero.
“It will enable a more efficient, flexible and greener energy system which will save billions of pounds per year on all consumers’ energy bills.
“Ofgem will work closely with industry to make sure it delivers this major upgrade while ensuring those in vulnerable circumstances remain protected.”
Last week Ofgem announced that the energy price cap would increase from 1 April for around 22 million customers, hiking bills by hundreds of pounds a year.
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