A report from the Institute for Fiscal Studies (IFS) and the London School of Economics has recommended making time-variable electricity tariffs the default for households in the United Kingdom as a means to reduce energy bills and improve grid efficiency. The findings suggest that aligning consumer prices with the actual cost of electricity generation, which varies significantly by time and location, could incentivize users to shift consumption to periods when supply is more abundant and cheaper.

Currently, only a small percentage of households—estimated between 2.8% and 10%, depending on the metric—are on tariffs that vary prices throughout the day, week, or month, despite 72% of homes having smart meters capable of supporting such pricing structures. The report highlights that many existing tariffs are rigid, offering little motivation for consumers to adjust their usage to coincide with lower-cost periods.

Bobbie Upton, a research economist involved in the study, stated that savings depend on the extent of adoption and consumer response to these tariffs. She noted that the potential benefits are expected to grow as electric vehicles become more widespread and technology that automatically shifts energy consumption to cheaper periods becomes more prevalent.

The report also discusses the operational challenges faced by the National Energy System Operator (Neso), which must frequently pay wind farms to curtail output during times of oversupply to avoid grid overload and compensate gas plants to increase generation closer to consumption points. This balancing act is projected to cost around £7 billion by 2030-31, more than doubling current expenses.

While the government has dismissed the prospect of implementing zonal pricing—charging different rates based on geographic location—the report proposes alternative targeted measures. These include offering households higher subsidies for electric heat pumps in areas where electricity production costs are low and greater support for solar panels in regions where demand is predominantly met by gas. The report further suggests that subsidy levels for future wind and solar projects could be adjusted according to location to mitigate grid bottlenecks.

The authors emphasize that adopting time-of-use tariffs or encouraging their wider uptake offers a cost-effective approach to reducing overall energy costs, with minimal fiscal impact on the government. The research stresses the importance of such measures in the context of persistently high energy prices, which disproportionately affect low-income consumers and are expected to remain a challenge in the coming years.