How to beat energy surge pricing – even if you already have a smart meter
Using energy at “peak” times could soon cost you more money, under proposed plans by the regulator.
Ofgem is consulting on introducing a “dynamic” energy price cap for millions of homes in a bid to meet net zero targets. It means energy suppliers will be allowed to charge more for electricity during times when the National Grid is at its busiest, but customers could also save money at quieter times.
Proposals would scrap the energy price cap – currently £1,690 a year – and effectively switch the entire country to a 1970s-style “time-of-use” tariff that charges different prices throughout the day.
The report added that this “surge pricing” model would likely only apply to customers with smart meters on variable tariffs. Customers could still opt to sign up to a fixed-rate tariff, in which case their bills would be unaffected by surge pricing – but you would need to weigh up which option is cheaper.
Unlike traditional meters, smart meters can send suppliers half-hourly updates on household energy usage, allowing firms to measure when you are using energy during peak and off-peak hours.
The Government wants 80pc of homes in England, Scotland and Wales to have a smart meter by the end of 2025, but their implementation is currently behind schedule. By the end of 2023, 61pc of homes had a smart meter, equating to approximately 35 million households.
Although no decision has yet been made on the introduction of surge pricing, Ofgem’s announcement has sparked concerns that it could punish older people and poorer households disproportionately, and put customers off from using energy when they need to.
A poll of more than 14,000 Telegraph readers found 86pc were against the proposal. So what can you do to avoid energy surge pricing if it is introduced? Here, Telegraph Money assesses what the impact will be on your energy bills and how to beat surge pricing, even if you already have a smart meter.
What could surge pricing mean for my bills?
If energy surge pricing were to be introduced and you were signed up to a fixed-rate tariff then it would not affect your bills; it would affect those with smart meters on variable energy tariffs.
Energy suppliers will be quick to point out the savings customers can make on their energy bills by accessing cheaper energy at points of the day when demand is lowest.
In fact some suppliers already offer “smart tariffs”, which are effectively dynamic tariffs. Octopus Energy says 2 million of its customers are already saving “hundreds of pounds each year” by using electricity at times when it is cheaper and greener.
Ofgem’s dynamic price proposal would either be introduced in weekly “time bands” that are divided into more expensive peak and cheaper off-peak periods, or linked directly to half-hourly wholesale market prices.
However, the regulator conceded the latter proposal would risk “exposing customers to wholesale price variability”.
So, while energy prices could be cheaper on days when there is more favourable weather – for instance, days when it is particularly sunny or windy allow for greater solar and wind energy to be produced – customers would be less protected from market shocks.
At the end of last year, Octopus Energy introduced a new tariff, offered to its smart meter customers where prices are tied to wholesale prices measured every half hour.
These “agile prices” can spike to up to £1 per kWh of energy as you are exposed to market volatility, although the supplier argues the peaks and troughs balance out and the typical household paid around 35p per kWh last winter.
The energy firm said customers on the “Agile Octopus” tariff saved an average of £400 compared to customers on a standard variable tariff last year, as they were able to take advantage when the supply of electricity generated exceeded the demand.
However, surge pricing will offer more benefit to households who have shifted large amounts of their energy use away from gas, or can take advantage of using energy outside of peak hours – such as electric vehicle owners who can charge their car overnight.
A spokesman for Octopus Energy said: “This is about plunge pricing, not surge pricing. Nearly 2 million Octopus Energy customers have saved money this way – with over £100m of savings. It’s very popular – just like special offers in supermarkets. People without smart meters don’t pay more, but people who choose to get them can enjoy extra offers.”
When are energy prices likely to surge?
The planned proposals do not provide a specific outline for when energy would be considered peak or off-peak, however existing dynamic tariffs show peak hours during the morning between 6am and 10am, and in the evenings between 6pm and 10pm.
Peak hours could also include weekend use and cold periods during the winter when there is increased demand on the grid.
Simon Francis, of charity End Fuel Poverty Coalition, argued that a new dynamic pricing system for electricity should not put customers off from using energy when they need to.
He said: “People shouldn’t be penalised and dis-incentivised from putting the heating on when they need to.
“Smart meter systems need to actually be smart and work for this to actually happen,” he said.
Do I have to get a smart meter?
There is no law to say you must get a smart meter, however most suppliers don’t install traditional meters any more, so when yours needs replacing, it’s very likely it will be swapped to a smart meter.
Traditional meters have a working lifespan of between 10 and 20 years, meaning if your traditional meter was installed prior to 2004, it will likely be replaced soon and changed to a smart meter.
However, some energy suppliers do still have existing stock of traditional meters and you could request they install this instead. According to Moneysavingexpert, British Gas says it is possible to replace your old meter with a new traditional meter, but it could cost you up to £179 for installment.
However, according to Ofgem, your energy supplier must change any traditional meter to a smart meter unless there is an adequate reason not to, so while you could request a traditional meter, this is not guaranteed to work.
Can I turn off my smart meter to avoid surge pricing?
Once you’ve had a smart meter installed, you won’t be able to go back to a traditional meter, and there’s no option to just switch it off. However, it may be possible to request your energy supplier to put your smart meter into “dumb mode”.
Doing this effectively means it loses its functionality and stops sending automatic readings to your energy supplier. It will therefore act like a traditional meter whereby you manually take readings and submit them to your provider.
In theory, this would stop surge pricing linked directly to half-hourly wholesale market prices from affecting your home, as the energy supplier would not be able to know at what points in the day you were using electricity.
How to make the most of off-peak energy
If you’re able to use energy during off-peak times, surge pricing has the potential to save you money. This could particularly suit those who are at home during the day, or who don’t work traditional hours.
If you’re only home during peak times, then this could take a bit of planning, but it’s still possible to make your appliances work for you.
For example, many washing machines come with timer options that you can set in the morning before you leave for the day, meaning it can run during off-peak hours and is ready to be emptied when you get home.
To reduce the time you’re using heating during peak hours, it could be timed to turn on at off-peak times just before you get home to warm your home, which could allow you to turn it off for a while in the evening.
Anything that needs charging – be it your phone, laptop, electric vehicle – could also benefit by being done overnight if prices are lower.
