Time-of-use electricity tariffs could hit vulnerable households with high costs | RenewEconomy

Time-of-use electricity tariffs could hit vulnerable households with high costs

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A new study has warned that mandating a shift to time-of-use electricity tariffs could leave vulnerable households paying even more for their power.

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New research that has studied the impacts of different electricity tariffs structures has warned that regulators must ensure vulnerable households are protected ‘price shocks’ created by a shift time-of-use tariffs.

In a new paper published in the journal Nature Energy, researchers found that vulnerable households could end up paying more for their electricity under peak/off-peak tariffs, as they

The research was led by Dr Lee White of the Australian National University and examined the experiences of around 7,500 households in the southwest of the United States and the impact of the roll-out of “demand-side response” measures on energy use.

The study compared households that remained on a fixed price tariff, to those who were shifted on to an on-peak/off-peak ‘time-of-use’ pricing structure, finding that while all households on the ‘time-of-use’ structure experienced higher prices, households with elderly and people with disabilities faced disproportionately higher increases in their electricity costs.

The researchers warned that mandating a switch to time-of-use tariffs could have a disproportionately negative impact for vulnerable households.

While time-of-use tariffs provided the potential for households to shift their electricity usage to periods with lower prices, including supporting the integration of renewable energy and energy storage systems into the grid, the research suggested they could also work to amplify the issues of ‘energy poverty’ experienced by vulnerable households.

The study found that vulnerable households were the least well equipped to understand and respond to the different pricing structures, and often had the least flexibility in terms of shifting their electricity use to different periods, and ultimately paid higher prices for their electricity under time-of-use tariffs.

“These groups have less flexibility in their energy use,” Dr White said. “For example, prior studies have confirmed high indoor temperatures have negative health impacts on the elderly.”

In particular, the study noted that households with older residents were less able to be flexible with their energy use on hot days, as going without air conditioning could have significant consequences for those vulnerable to heat stress.

“In our study, we found people with disabilities were also more likely to need medical attention for heat-related illnesses under time-of-use rates,” Dr White added.

“Across all rate designs, people with disabilities or low-incomes reported more heat-related discomfort, and greater likelihood of needing heat-related medical attention,” Dr White added. “There is a need to keep testing designs for new rates to find ways to shift usage patterns without increasing hardship.”

While consumer advocacy groups concur that time-of-use tariffs may not suit all consumers, the Public Interest Advocacy Centre said that it shouldn’t mean they are avoided altogether, as they do provide the potential for some consumers to cut costs and to support the increased adoption of renewables.

“Renewables need to be integrated into the grid as quickly and cheaply as possible. Time of use tariffs and other pricing reforms are important tools for integrating intermittent generation and new technology like batteries and electric vehicles into the energy system,” PIAC’s Craig Memery told RenewEconomy

“Time of use tariffs can negatively impact some consumers, who have high peak consumption and less ability to shift their energy use to off-peak times, however, this does not mean these tariffs should be dismissed altogether. Many people who have lower peak consumption or who can shift their energy use will be better off under time of use pricing.”

“Rather than delay necessary pricing reforms, we should limit the potential for disadvantage by providing better assistance and protections such as concessions and supporting energy efficiency measures for vulnerable consumers.”

Dr White suggested that more work needed to be done to understand the impact of time-of-use tariffs on particular households before they were rolled out across all households.

The researches noted that if households were unaware or unable to respond to increased tariffs during ‘on-peak’ periods, households could face overall higher energy costs than fixed tariffs, and faced the potential of ‘bill-shock’.

“Vulnerable households are already struggling to balance energy costs with other necessities – like food and medicine,” Dr White said. “We need to ensure we get these policies right, before we set them in stone.”

“The impact of new rate designs on vulnerable groups should be tested before widespread rollout, to ensure that rates do not increase hardship.”

“To design future electricity grids relying on intermittent solar and wind without needing a lot of storage, one important method can be to decrease the size of usage peaks and shift timing to when generation is more readily available,” Dr White added.

The availability of time-of-use tariffs has become relatively common across Australia, but in most cases, the option to remain on a fixed price tariff is also available.

Recent projections from the Australian Energy Market Commission have shown that electricity prices across most of Australia are expected to fall over the next couple of years, driven downwards by strong investment in new renewable energy generation projects.

When publishing the projections, the AEMC encouraged all households to seek out cheaper energy tariffs from their electricity retailers, including through using independent comparison tools that include the Australian Energy Regulator’s Energy Made Easy website, the Victorian Government’s Victorian Energy Compare and the NSW government’s Energy Switch tools.

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9 Comments
  1. Charles 3 months ago

    That’s unexpected… usually it’s people who are at home during the day who benefit the most from time-of-use?

  2. Tom 3 months ago

    Australia’s bad tariff structure already disadvantages the poor.
    You don’t help the downtrodden with a fancy tariff – they need direct funding to help with efficient appliances.
    The rest should have cost reflective tariffs to drive better behaviour.

  3. JackD 3 months ago

    At least one Distributon Business already mandates TOD tariffing when rooftop solar systems are installed in residential premises. Others don’t !! (yet!!).

    Clearly they believe that flat, uniform tariffs for residential usage, are a discount applied to their revenue.

  4. Pedro 3 months ago

    The energy retailers could offer both fixed and TOU tariffs. The customer pays which ever is the cheapest at the time. Probably will happen when a unicorn pops into existence.

  5. Aidan Stanger 3 months ago

    That article was based on an American study. I’d be wary of applying its conclusions to here where parasitic electricity companies have a huge markup over electricity costs.

  6. Hans the Elder 3 months ago

    The original article is behind a paywall, so it is difficult to check the assumptions used in the study. However, the way the results are presented here are counterintuitive. With lots of PV on the grid power will be cheapest during the the middle of the day. Unemployed and pensioners can shift loads like washing to this time of day. They can also pre-cool their house during this period, (temperature lags compared to sunshine). Using a cheap timer device the working poor can do the same.

  7. Ray Miller 3 months ago

    As the energy supplies all around the world “must” be decarbonised and mostly with increased use of VRE (Variable Renewable Energy) , this “research” is but a straw man’s argument to distract from the main decarbonising issue.

    I would also argue that TOU tariffs are incompatible with high levels of VRE by the vary definition, the whole issue is a supply and demand equation (excluding the opportunity for greed which needs to be regulated against). With high amounts of ‘variable’ generation the load must follow with the bounds of available storage and geography and technology diversity.

    Our societies must find a way of dynamically adjusting our usage with the capacity of the carbon constrained energy sources, while assisting those who find it difficult to adapt. Just maybe attending to our poor buildings maybe a solution which needs urgent attention.

  8. Kramhh 3 months ago

    Agree with other commenter that this is a strawman argument.

    We are all paying more (including these households), because of the inefficiency of our perverse market that has such a poor price mechanism in play. TOU is a step in the direction of more effecient market mechanisms. Still not perfect, but much better than now. Yes, some retailers may try and gouge the ignorant at first but it is not that hard for the regulators to mandate awareness info packages when a switch occurs. In the end it will be cheaper for everyone.

    Study is either out of date or not based on region of high solar pv. Electricity will be cheapest during the day, so pensioners using electricity at home while others are at work/school fits well. A TOU should lower electricity costs for them even more than other groups. It sounds more like the anti TOU people are the ones denying these groups an easier time regarding money.

    And even in the hypothetical scenario there was an increaes in costs for some vulnerable groups, than it is pretty simple to either subsidise overall costs for them or have an increase in support payments to cover it. Overall it will still end up with cheaper electricity.

    One other thought. We (the government and the voters who put them in) make the groups vulnerable by not providing enough support. TOU pricing is not the root problem here.

  9. Ian 3 months ago

    Not too sure what we are as a political entity. Are we the 53rd state of America or an overseas territory, or a vassal state or a friend with benefits. We would have to be one of those for this study to apply here;)

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