by Mark Thompson
The new Energy Bill will be a welcome step forward for an industry that has been waiting many months for the government to decide on its energy policy.
However, some of the proposals on tariffs have raised a few eyebrows in the industry. Ofgem’s recent Retail Market Review concluded that consumers are confused by the hundreds of tariffs on offer, and that many are paying too much for their gas and electricity. Ed Davey, the energy secretary, has now told power companies that from 2014 they can only offer four tariffs per fuel, and that all customers need to be put on the cheapest tariff available.
It’s a praiseworthy policy from the consumer’s perspective – but is it practical? The energy usage of a household varies with the seasons, with the time of day, and with the changing circumstances of the family that lives in it.
If a couple are both working nine-to-five jobs, their weekday consumption will probably be reasonably low. But if one of them starts to work from home, loses their job or goes on maternity leave, their usage patterns will change dramatically – especially in winter.
Ultimately, though, it doesn’t matter whether the industry thinks the policy is a good idea or not: if the Energy Bill passes through parliament, they will have to find a way to make it work. Whilst Power companies can make some changes to simplify tariff structures they are not in a position to predict when customers’ living arrangements may change, which means they can’t guarantee that a given tariff will always be the cheapest for a given customer. The most practical way to meet the requirements may be to empower customers to make their own choices about the tariffs that work best for them in a simple, consistent manner based on accurate information.
The national rollout of smart meters, which is due to be completed by 2019, can be a key enabler here. By taking meter readings throughout the day, providers can build up an accurate picture of each customer’s usage patterns and also offer “Time of Use” pricing when the power is cheaper to generate.
This means they can give customers the information they need to make properly informed decisions about their tariffs – and even provide actual data up to the previous day, via the internet. And since smart meter settings can be updated instantly, customers will be able to switch products and tariffs whenever they choose.
Smart metering can turn the tariff problem on its head: The provider can focus on capturing data and turning it into useful information, empowering the consumer to make informed decisions about their energy choices. Over time, customers may choose to reward the suppliers that took a lead in this area.
In any event, those who don’t want to engage in this way can have the potential savings they would make displayed on their bill, allowing them to choose a new tariff if they wish.
As our team at AMT-SYBEX continues to work with providers to solve the technical challenges around meter data management and analytics, we’re confident that smart metering will play a key role in enabling tariff reform.
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