Energy bills could be reduced if the Labour government, led by Andy Burnham, makes time-varying tariffs the standard for all consumers, according to a recent report. Currently, the vast majority of domestic energy customers remain on flat-rate tariffs that do not reflect the varying costs of electricity production throughout the day and across regions.
The Institute for Fiscal Studies (IFS), in collaboration with the London School of Economics, has highlighted that the cost of generating electricity depends significantly on the time and location of production. For example, power generated in Scotland is often “effectively free” during periods of high wind, while at times of peak demand, particularly in the south of England, expensive gas-fired generators must increase supply to meet needs.
At present, only about 10 per cent of households and businesses benefit from time-variable tariffs, the IFS report found. The government has been advised to make these tariffs the default for all consumers.
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Bobbie Upton, research economist at the IFS and co-author of the report, stated: “Encouraging greater adoption of time-varying electricity prices could lower bills for consumers with minimal cost to the Government. The extent of savings will depend on how actively consumers choose to switch and adjust their electricity usage accordingly. Evidence indicates savings are achievable, especially as more households integrate electric vehicles and technologies that automatically shift consumption to lower-cost periods.
“Looking ahead, higher electricity prices are likely to persist over the coming years. Enhancing the efficiency of the electricity market would therefore offer long-term benefits.”
Mark Franks, director of welfare at the Nuffield Foundation, emphasised the importance of pricing for vulnerable households: “Electricity prices affect all households, but disproportionately impact those on low incomes. Energy costs take up a much larger share of spending for poorer families, and uncertainty about future price increases causes significant anxiety for those already struggling financially. Any credible measures to reduce consumer costs, especially for the most vulnerable, should be carefully considered by the government.”