How smart tariffs can create a more competitive energy market

‍

However, until recently, the availability of smart tariffs has been somewhat limited across Europe. Because the tariffs rely on significant amounts of energy use data, their availability is intrinsically linked to Europe’s smart meter rollout, which is more advanced in some countries than others.

As the rollout continues, power data will continue to grow and provide opportunities for consumers to access lower-rate domestic energy for heating and appliances.

And the same goes for electric vehicle charging. A recent European survey shows that almost half of EV drivers aren’t using off-peak charging. With more smart tariff options, EV drivers would have more awareness of the savings that could be made from charging their vehicles at specific times of day.

According to Schmidt Automotive, electric vehicle sales will reach a market share of 60% in Western Europe by 2030. As the number of vehicles being charged at home increases, the need for smart charging will become essential to lowering the cost of integrating electric vehicles into Europe’s energy infrastructure.

To this end, the European Union is promoting demand response through its Clean Energy Package by asking member states to offer energy consumers with dynamic electricity pricing options.

As an increasing share of Europe’s electricity is generated from renewable sources, the need to match demand for electricity with the intermittent supply of wind and solar power is essential. For Europe to become Net Zero by 2050, consumers need pricing signals to enable them to adjust their energy consumption accordingly.

How do smart tariffs work?

Smart tariffs are essentially ‘time-of-use’ tariffs where consumers pay different rates for the energy at different times of day. By breaking the 24-hour day into several periods, energy suppliers can apply different charges for different periods.

For example, during the day, when domestic energy consumption is generally lower, ‘off-peak’ prices are applied and consumers benefit from lower rates. Smart meters are installed in the home and the consumer’s actual energy use is monitored across the different time periods and charged accordingly.

With a smart tariff, customers can choose when they use their heating and appliances, and when they charge their electric cars to match the cheapest tariff.

The case for dynamic energy pricing

Time-of-use tariffs have been around for a while in Europe, but not on a large scale. To date, consumers have been somewhat reluctant to take advantage of dynamic pricing with most people viewing electricity as something that’s used when it’s required, not when it’s cheap.

Likewise, until the EU started promoting dynamic pricing, the incentives for consumers to use smart tariffs were relatively poor with little variation in energy wholesale prices during high-peak and off-peak times.

However, consumer behaviour is changing and as more people have access to smart meters, the readings will help energy suppliers understand how much energy is being used, and when. With this information, suppliers will be able to offer more tariffs and create a more competitive market.

The longer-term benefits of smart tariffs

According to statistics from the World Economic Forum, around 5% of Europeans regularly worked from home before COVID-19. That figure has now risen to around 12.3% on average, with Finland having the highest share of remote workers at 25.1%, followed by Luxembourg at 20%.

As companies continue to realise the benefits of flexible working, it’s likely that Europe will see an uptake of smart tariffs. People who have flexible lifestyles are more likely to benefit from using heating and electric appliances during off-peak times. Washing machines and dishwashers for example, can be used at night instead of at peak hours during the day.

What’s more, as new ‘connected’ devices are introduced into the market, the next generation of smart appliances will be able to communicate with smart meters and switch themselves on and off to make the most of cheaper consumption periods.

With electric vehicles, being able to shift charging to cheaper hours can help consumers save hundreds of euros a year. With today’s technology, charging devices and apps can pre-determine what times, and how quickly to charge for optimal energy rates.

The availability of smart tariffs across Europe

Although the availability of time-of-use tariffs is still limited across Europe, some countries have introduced successful mandates to ensure consumers have access to dynamic energy pricing. Spain, for example, made time-of-use tariffs compulsory for consumers as of June 2021.

Under the new tariff structure, there are two periods for capacity charges instead of one all-day period. In addition, separate peak-power levels can be contracted for each period. As a result, the capacity tariff is expected to be only 10% of the cost of the current single-period tariff.

France also applies time-of-use capacity tariffs to consumers with a large capacity of above 36kW with possible plans to introduce the initiative to smaller-use consumers in the future.

Of course, a less radical option for European suppliers would be to offer customers at least some version of dynamic pricing, where retail electricity prices pass through at least part of the wholesale price volatility before being offered. This could be achieved through real-time pricing and other less advanced forms of critical peak pricing.

How triPica can help energy suppliers leverage smart tariffs

At triPica, we help energy suppliers reinvent their business model through our customer-centric SaaS platform. It’s the perfect option for utility companies that are looking to differentiate themselves by offering a better customer experience.

As the only cloud-native “grid-to-cash” software on the market, triPica enables energy suppliers to leverage smart meters to handle dynamic pricing thanks to our real-time micro-service architected platform.

We provide high-volume data storage for smart meters and real-time consumption recommendations. Our ERP platform enables suppliers to adjust monthly payments with usage graphs, and raise bill alerts to anticipate any unexpected high consumption.

Find out more about how triPica can help your company leverage smart tariffs with our ERP platform technology.