Block tariffs could hinder uptake of time-of-use deals, Octopus warns

Reforming tariffs so that the highest users pay the greatest unit charges would hinder the uptake of time-of-use deals, Octopus has warned.

The supplier has urged the MPs to back away from their previous support for replacing standing charges with so-called block tariffs.

This type of deal, which has been rolled out in Dubai, creates a sliding scale for electricity prices with those in the top usage block paying the most per unit and then progressively reducing.

Proponents of the block tariff model argue that given lower income households tend to use less energy than their more well-heeled counterparts, it offers a targeted way of reducing costs for the former, while making excessive users pay a premium.

However, Octopus warns that many households’ would lack the ability to reduce their usage needs in order to stay within a certain usage block due to their poorly-insulated homes and wider household needs.

In its response to the House of Commons energy security and net zero committee’s inquiry into bill discounts, Octopus states: “To attempt to reduce usage under such conditions will inevitably lead to unsafe rationing and/or escalating debt from lower income households in inefficient, leaky homes.”

In addition, Octopus says the energy transition is demonstrating that greener, cheaper energy can be “unlocked through shifting when energy is used, not restricting how much energy is used”.

It adds: “Support for rising block tariffs on the grounds of encouraging energy efficiency is significantly undermined and they would hinder the widespread roll out of smart, time of use tariffs.”

Proponents of rising block tariffs include the House of Commons energy security and net zero (ESNZ) committee which threw its weight behind the tariffs following a snap inquiry into how the government and energy firms can best prepare for last winter.

The report recommends that the government should engage with Ofgem to revise the standing charge model and replace it with a rising block tariff.

In its response, Octopus also recommends improving support for low income customers by improving and expanding the Warm Home Discount (WHD) scheme.

“The WHD is a live “social tariff” with a strong framework in place. Rather than reinventing the wheel it would be easier to review WHD, ensuring that it continually improves as an interim tool to support households.’

Octopus calls for the WHD to be improved by shifting the way it is funded from energy standing charges into general taxation, considering whether the breadth of support can incorporate cost of living payment recipients.