New smart meters and heat pumps to have surge pricing function

SMART meters and other energy appliances such as heat pumps will be equipped with a surge pricing function under plans being put forward by ministers.

The proposals under consultation by the Department for Energy Security and Net Zero (DESNZ) would require a string of devices to be “smart” by default, allowing them to take advantage of so-called time of use tariffs.

As an example of surge pricing, these tariffs charge households more for electricity when demand is highest and less when it is lower.

Supporters argue they could lead to household savings if appliances or electric cars are programmed to only draw power when prices are low.

However, critics fear they could penalise customers for consuming electricity when they need it most.

The new standards put forward by ministers will also require energy appliances to meet a minimum threshold for cyber security and interoperability, the latter to ensure that all smart meters continue to function correctly after a change of supplier.

The Government said: “Smart appliances enable consumers to manage their energy use to benefit from cheaper tariffs at times of low electricity demand, for example a smart charge point that waits for a period of low demand overnight to charge the car. This will reduce the consumer’s bill while also ensuring that their car is ready to be used in the morning.

“By shifting some electricity use away from peak periods, this will ease pressure on the grid and reduce reliance on back-up fossil fuel generation and the need for new infrastructure.”

It comes after official figures showed almost 4m smart meters were not working correctly, leading to people being billed incorrectly. There are now 32.9m smart meters in UK homes overall, according to government figures.

The consultation marks the latest step in efforts by ministers to roll out time of use tariffs more widely, which rely on suppliers being able to access the half-hourly data that smart meters collect.

Besides cost savings, the moves have also been supported by the National Grid as a way of helping to manage supply and demand by more efficiently using smart technologies.

Efficiencies achieved through smart technologies could save £50bn in grid costs by 2050, the Government said, reducing the need for more electricity pylons. DESNZ claimed a greater use of smart systems would also create 10,000 jobs and increase UK GDP by up to £1.3bn by 2050, with thousands more jobs potentially in the offing if a successful export industry grows as well.

Relatively few people are currently on time of use tariffs but major suppliers such as Octopus have introduced consumers to a similar concept in recent years as part of the National Grid’s “demand flexibility service”.