Martin Lewis: “Before time-of-use tariffs take over – we need consumers to be protected”

The new ones can only generally be done via smart meters, and while the concept is great, there is a huge opportunity for tariff confusion and pricing distortion with some of them. I want to ensure this is thought about and tackled before they become too commonplace. So I've bashed out this blog to explain my thoughts on the problems and a few suggestions on the solutions.

In general, there are two types of time-of-use tariffs:

• Fixed-price TOUs.

  Here you usually have two or three unit rates for different times of the day, many electric vehicle tariffs follow this pattern. For example, a daytime rate at, say, 29p per kWh and a night-time rate from, say, midnight to 5am at 6p to 9p per kWh. These are fairly easy to compare if you can use a spreadsheet, though the comparison site models haven’t caught up to this yet (I’m working on it for Cheap Energy Club).

• Variable price TOUs.

  These are more sophisticated tariffs. The big one is the Octopus Agile tariff, where the price of electricity varies every half hour. This can produce super cheap prices overnight, sometimes even paying you to use excess electricity, but you pay substantially more in peak times. Crucially though, the price is not fixed. It depends on what is happening in the markets/grid so your rate for, say 14:00 to 14:30 can change every day.

If more variable price TOUs are launched, how can consumers compare them?

The answer is 'not very easily' as there is no set price! Policymakers want to encourage more of these type of tariffs, so fast forward a few years and imagine 10 of them from different firms, all with varying prices – how would you decide which is cheapest?

That question needs answering in advance to allow the market to develop and consumers to be protected, and it is something I have raised with the energy regulator Ofgem.

My suggestion is simple:

1. Rules should mandate all suppliers to publish the underlying algorithm and pricing structure.

In other words, how do they chose the price, what is the input value and then how does that factor into the price charged. To be fair Octopus does this already.

2. These algorithms must be locked in for a clear time period.

If the model changes weekly, consumers are still in the dark - so it should be locked in for a published time period eg. 12 months.

Now, while this information will still be incredibly complex and time consuming for regular consumers to compare, it should be easy for trusted intermediaries or comparison services to take hold of and build tools to do it.

3. Ofgem should mandate that every customer is able to access their smart meter usage data for free.

You can sometimes get it for free now, via firms that pay the Data Communications Company (DCC) for it – but they are paying for it. Consumers should have a right to their own data – a bit like you do with a Credit Reference file or data from your bank account through Open Banking.

Consumers could then easily and securely share their energy data with a service that could work out which company would be cheapest.

Equally this data would also then enable examination which could help people reduce bills, eg: “It looks like you’re turning an appliance on regularly at 6pm. If you moved that to 3pm you could cut your bill by xx%.”

Time-of-use tariffs have huge potential, but right now there is a risk consumers will be flying blind.

If the regulator and Government are to encourage them, it is important they make them understandable, comparable, and transparent. Publish the algorithms, give consumers free and easy access to their energy data, standardise the inputs, and lock the rules.