Report by Brattle Economists Explores the Value of Time-of-Use Tariffs in Great Britain
Prepared for Citizens Advice
Brattle economists have co-authored a report that quantifies the system value of time-of-use (TOU) tariffs in Great Britain and explores consumer preferences for TOU tariffs.
According to the report, new developments, including growing adoption of smart home appliances and Great Britain’s ongoing smart metering rollout, have sparked interest in offering TOU retail tariffs to domestic customers. With TOU tariffs, customers would be charged prices varying by time of day rather than a flat price regardless of when electricity is consumed.
While there have been studies that quantify the potential value of TOU tariffs to the power system and explore the value of TOU tariffs to consumers, there has been little research done that systemically combines these considerations into a comprehensive view of the overall value of TOU tariffs. The report, prepared for Citizens Advice, finds that:
- Under current market conditions, TOU tariffs that are offered on an opt-in basis could produce annual savings of £20 to £25 million per year in Great Britain. This equates to average annual savings of roughly £5 per participant.
- In a future scenario with higher electricity demand due to electrification of heating and transport, and/or greater adoption of smart home appliances, this value could increase to between £150 and £250 million per year.
- On average, roughly one-quarter (26%) of customers indicated that they would switch to a TOU tariff.
- Tailored messaging can be effective in boosting demand for a TOU tariff.
- A perceived opportunity to save money, and a perception that the tariffs are easy to use and understand also contributes to higher likelihood of uptake.
These findings also lead the authors to a number of recommendations for policymakers, network operators, supplies, and other industry stakeholders that are exploring the possibility of a transition to TOU tariffs. These recommendations include focusing on customer engagement and communication; taking a holistic view of the value of TOU tariffs that extends beyond simple monetary value; giving critical peak rebate (CPR) tariffs serious consideration and test them through an opt-out trial; and ensuring charge and settlement processes facilitate the provision of economically efficient TOU design.
Additionally, the authors recommend that TOU design should focus primarily on avoiding capacity costs in the near- to medium-term; and that implementing the Voluntary Smart Home Rate tariffs could help to improve the perception among some industry stakeholders that automating technologies will not achieve significant market traction until there are granular retail price signals to which the technologies can respond. They also suggest exploring options for making automating technologies accessible to low income customers. The authors conclude that more work is needed to understand the reasons for these findings and explore alternative ways for reassuring and protecting consumers.
The report, “The Value of TOU Tariffs in Great Britain: Insights for Decision-makers,” is co-authored by Brattle Principal Ryan Hledik, Senior Research Analyst Will Gorman, Research Associate Nicole Irwin, as well as, University College London (UCL) Research Associate Michael Fell, Doctoral Researcher Moira Nicolson, and Senior Research Associate Gesche Huebner. The report will be presented at a Citizens Advice event on Monday, 10 July 2017 at 15:00 BST.
The full report is available for download below.