Analysing the impact of Time-of-Use tariffs
Modelling the effect on customers’ bills based on their usage
Project duration: September 2013 to April 2014
The rollout of smart meters will enable electricity suppliers to deploy new Time-of-Use (ToU) based approaches to pricing electricity. These have the potential to stimulate customers to shift demand from peak to off-peak periods or simply to reduce peak demand, in both cases reducing system costs and improving system efficiency.
However, there will be variations in the ability of different customers to take advantage of ToU tariffs, depending on their current pattern of electricity usage and their willingness or ability to respond. Understanding the scale and nature of these variations will be important both to the design of effective ToU tariffs and to considerations of how consumer interests may be protected as such tariffs become available.
To support its initial consideration of the potential impacts of ToU tariffs on domestic electricity consumers in the UK, energy regulator Ofgem commissioned CSE to undertake analysis and modelling of domestic electricity use patterns.
Given (a) the limited availability of data which combine domestic ToU electricity consumption patterns with consumer socio-demographic characteristics, and (b) the limited evidence of how different consumers might respond to ToU tariffs (by changing their demand patterns), this analysis is inevitably constrained in its scope. It has therefore been focused primarily on developing analytical and modelling techniques which have the potential to be applied subsequently to more comprehensive data and evidence as they become available. CSE used the half-hourly smart electricity demand dataset collected during the Energy Demand Research Project (EDRP)1.
To support the analysis, CSE:
- Used cluster analysis to identify a set of archetypal weekly demand profiles
- Created a half-hourly tariff model to calculate the electricity bills of approximately 5,000 EDRP cases based on three example ToU tariffs defined by Ofgem which were then compared with a representative standard non-ToU tariff.
What did we find?
The analysis identifies a number of meaningful clusters within the main domestic profile class currently used in settlement. The tariff modelling demonstrates the potential impacts of a ToU tariff on different consumers’ bills. It also highlights the potential for this modelling approach to reveal which consumers are most likely to benefit from – or be disadvantaged by – ToU tariffs. It shows that the types of customers that benefit from ToU tariffs will depend on their current usage pattern as well as how they respond and the type of ToU tariffs on offer.
Above: Evolution of the weekly electricity demand profile for the EDRP data sample as the cases are divided into 2 and then 3 separate clusters – each curve is a half-hourly graph of the average week’s electricity use, starting at midnight on Sunday.
This initial exploratory research did not model consumer response to ToU tariffs and was limited to three static ToU tariffs. In reality, many different types of ToU tariff may exist in the future and each type is likely to have different impacts on consumers. The findings from this research demonstrate the importance of (a) developing our capability to understand these impacts in more detail and (b) ensuring that consumers are well informed about both their energy use and the types of ToU tariffs on offer before switching to these more innovative types of tariff.
CSE's Joshua Thumim, who headed up this analysis, said, "This work demonstrates the value of collecting and analysing half-hourly smart electricity meter data; the techniques used here could be extended to much larger data samples, offering opportunities to support regulatory and policy development work in the domestic electricity arena.”
1 The EDRP was a two-year trial of domestic smart meters and energy demand reduction interventions which ran from 2008-2010. It was part-funded by DECC, managed by Ofgem, and run by four energy suppliers.