Dynamic tariffs

Overview of the status and impact of the innovation



Dynamic tariffs vary over time or by location depending on the conditions in the power system, such as the amount of demand or renewable generation. These price signals provide incentives for customers and system operators to optimise both electricity use and energy production and to reduce costs. For example, higher electricity prices during peak consumption hours will encourage customers to use less energy for heating or cooling, thus lowering peak loads. Similarly, low prices when large amounts of renewable energy are available will encourage greater energy use, helping to avoid the curtailment of renewable sources.


The price signals enabled by dynamic tariffs create powerful incentives for consumers and system operators to adjust their use of heating and cooling appliances or storage to reduce energy costs. This process of adjustment, in turn, enhances an energy system’s flexibility. Price signals can also encourage consumers to adopt heat pumps and other highly efficient equipment, which will accelerate the decarbonisation of the energy system.

BOX 6.12 Agile Octopus

In the United Kingdom, the energy supplier Octopus Energy uses dynamic electricity prices to encourage customers to shift their electricity consumption from peak to non-peak hours, for example, by charging electric vehicles or running heaters at night when demand is low. The programme, called Agile Octopus, adjusts prices every half hour based on changes in wholesale prices. Decline in wholesale electricity prices cause savings on energy bills for customers. In unusual situations where electricity surpluses cause prices to turn negative, the programme even pays customers to use more electricity to take energy off the grid. To protect customers from very high wholesale prices, Octopus Agile caps retail prices at GBR 0.55/kWh. The service is fully digitalised, and users can access all services using their smartphones.

Source: Octopus Energy (2022).

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