In this model, heat pump owners are incentivised to shift their energy usage in line with times that energy is cheaper with Smart electricity tariffs.
Resource
Business model: Smart electricity tariffs
In this model, heat pump owners are incentivised to shift their energy usage in line with times that energy is cheaper.
Energy suppliers provide heat pump owners with a ‘smart electricity tariff’ which charges them different costs for energy (on a p/kWh basis) at different times of the day.
Lower prices are usually observed in the early hours of the morning (4-6am) and the early hours of the afternoon (1-3pm).
The tariff prices are unlikely to be ‘fixed’ and will likely fluctuate in line with changes to the Energy Price Cap. However, the discount on energy may remain fixed (either as a percentage or a numerical value).
Heat pump owners may use an optimisation provider to control heat pump performance during different price periods on their behalf (at cost).
Primary benefits
- Customers should observe energy bill reductions if they shift their energy consumption to cheaper time periods (compared to energy bills for heat pump households without a smart electricity tariff)*.
- There are several energy suppliers that currently offer smart electricity tariffs.
- Increases customers’ awareness of energy usage patterns and may encourage energy efficiency improvements.
- Fixed energy discounts could enhance customers’ understanding of the proposition.
- If using the services of an optimisation provider, heat pump performance is optimised on behalf of consumers, reducing the need for manual control.
*Reductions observed compared to energy bills for heat pump households without a smart electricity tariff.
Key risks and considerations
- Some suppliers charge a significant premium for energy consumed during peak periods, meaning that customers may not observe energy bill savings if they are unable to successfully change their energy consumption patterns.
- For variable energy supply contracts, tariff prices are subject to change in line with fluctuations in energy prices, which could lead to unpredictable costs for customers. However, this risk could be reduced by opting for a fixed contract.
- Proposition only available to households with smart meters.
- Unless using an optimisation provider, customers will have to manually control heat pump performance to benefit from periods of cheaper energy prices.
- Does not reduce capital cost of heat pump installation, meaning proposition is primarily targeted at able to pay market.
Case study: EDF heat pump tariff
Overview
EDF Energy are launching a trial tariff which could allow heat pump owners to save more than £164 on energy annually. The ‘Heat Pump Tracker’ tariff offers six hours of low-cost electricity daily (at 4-7am and 1-4pm).
Unlike other smart tariffs, the tracker tariff does not charge a premium price during peak periods. Instead, it consists of three daily rates: A day rate (set based on the local area), the heat pump tracker rate (a 10p discount off the standard tariff rate in the region) and a daily standing rate.
Financials
The tracker tariff follows a flexible pricing model that adjusts in line with the Price Cap set by Ofgem. Unit rates are reviewed every three months but the 10p discount remains constant.
The tariff has no exit or tie-in fees, leaving customers to switch at their discretion.
Scale of deployment
The trial is currently accessible for heat pump owners that have an existing variable tariff with EDF Energy and have a smart meter installed.
EDF Energy. (2024). Unleash the power of your heat pump.
Guest preview of selected publicly available resources