 The recent energy and cost-of-living crises have been driving more people than ever into fuel poverty. While we host regular energy advice sessions in local community hubs and provide free advice over the phone, more needs to be done at a national level to support lasting, sustainable change. One potential avenue being discussed at the moment is the pricing structure of energy tariffs and how a shift could help to shape consumer behavior, address fuel poverty, and achieve net zero targets – namely rising block tariffs and time-of-use tariffs. Rising block tariffsRising block tariffs charge a lower rate for an initial block of energy, with rates increasing for each subsequent block. This structure is designed to encourage people to save energy by penalising higher consumption and to create benefits for the kinds of customers who use so little energy that their standing charge could be as high as their actual electricity bill. According to the Guardian, the rising block tariff is “almost unknown in Europe but operates successfully in many other countries and regions – from Japan, South Korea and China to Bangladesh, India and California.” Time-of-use tariffsAnother of the solutions being floated is ‘time-of-use tariffs’, which offer variable rates depending on the time of day, encouraging consumers to use energy during off-peak hours when it is cheaper and demand is lower. These tariffs encourage you to use less electricity during peak times, charging a higher price for any electricity used in this period. Vice versa, it will also charge a lower price during lower demand, off-peak periods. The aim is to flatten peak demand curves, reducing the need for carbon-intensive energy production when demand is highest. Dynamic pricing can mean significant cost savings if you can adapt your usage to off-peak times, e.g. charging an electrical vehicle overnight. AffordabilityRising block tariffs may offer some benefits to smaller households or those with lower energy needs, helping them to minimise costs. The Guardian argues that rising block tariffs could help reduce or eradicate fuel poverty, “with those on the lowest incomes getting affordable energy to cover the essentials – from heating to cooking and light.” They could, however, disproportionately affect larger households or those with specific energy needs for health vulnerabilities. These households could find it difficult to stay within the cheaper initial block, leading to higher overall bills and greater risk of fuel poverty. Octopus have suggested that a rising block tariff could not only create a “cliff edge of customer eligibility for lower energy prices” but hinder the progress of the time-of-use tariff. Time-of-use tariffs potentially offer more opportunities for consumers (who are in a position to do so) to actively manage their energy costs through behavior changes. With the rise of smart meters and home energy management systems, consumers are better equipped to use their energy more wisely and take advantage of lower rates to keep their bills down, rather than cutting back entirely. Environmental implicationsFrom an environmental perspective, both tariffs could support the UK’s net zero targets. By incentivising off-peak energy use, time-of-use tariffs encourage more efficient grid use and see more renewable energy sources integrated into our energy system, thereby reducing reliance on fossil fuels. The Guardian article argues that the large amounts of cheap, new renewable energy generated through the UK government’s plans for onshore-wind and solar could be directed into a new rising block tariff. It states, “in this scenario cheap wind and solar power would … be split between all consumers, giving the public a direct stake in the transition to a low-carbon energy system.” Striking the balancEBoth rising block tariffs and time-of-use tariffs could play an important role in the UK’s energy landscape both in terms of carbon and costs. While there are many positives, both have their potential drawbacks. We think the rising block tariff could be a good way of getting the more wasteful in society to start thinking about the energy they are consuming. We know that the recent energy price spikes precipitated conversation and action, for instance. But there will always be a section of society that relies more heavily on a consistent energy supply, or has an electrically heated home which naturally consumes more energy. Lower-rated EPC homeowners and renters could also end up being unfairly penalised. There will be no one-size-fits-all approach. These cases should be considered carefully to ensure that nobody is left behind in our transition to greener energy. The success of any change to tariffs hinges on consumer engagement and education of households – something we are more than ready to play a part in. Get in touch to get support with your energy bills or to discuss hosting an energy advice café. Sources
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