Three ‘principles’ outlined for setting future tariffs

The government has outlined three principles that suppliers should abide by when setting default tariffs in the future.

The principles are designed to reward customers for using energy smarter; protect consumers from complex tariffs and costs; and protect households from the inefficient use of high-consuming items by other consumers.

They are laid out within a call for input on future default tariffs.

The call for input adds that energy tariffs have a “key role” to play in ensuring the uptake of low-carbon technologies.

However, it adds that while customers switching to low-carbon technologies will likely look to switch to dynamic tariffs, the use of default tariffs must not unfairly punish customers looking for simpler arrangements.

It adds: “Different consumers will want different things. Everyone will benefit from a smarter system with more flexible behaviour, as it will drive down the costs of generating and transmitting energy.

“But while some households will want and be able to use energy more flexibly, others will need and prefer simpler arrangements.

“To build a credible path to better energy prices, we need to identify a fair way to manage the trade-offs between different interests in the future.”

To help achieve that, the government is considering adopting the following three principles:

Principle 1: The market should be free to reward households for using energy smarter. There is currently little benefit to consumers of engaging with their choice of energy tariff; in part because of the current limited availability of deals that are more competitive than regulated default tariffs. In the future, there should be new reasons to engage. Low-carbon technologies, like smart EV charge-points, should help households to shift their energy use to off-peak times and consumers should be able to benefit financially from the extra value they create by using energy more flexibly. Regulations will need to account for the fact that encouraging households to become active in their energy choices is not only good for their bills but could also drive down the system costs for everyone.

Principle 2: Default tariffs should protect consumers from unnecessary complexity and costs. Although everyone will benefit from a smarter system, not all consumers will want or be able to adapt their energy use to take advantage of newer deals, like dynamic Time of Use tariffs. Forcing households into particularly complex deals that they are not prepared for is not reasonable and will not help achieve net zero.

Principle 3: Households should not be exposed to excessive costs from the inefficient use of high-consuming items by other consumers. The cheapest way to use low-carbon technologies, like electric vehicles, is through smart Time of Use and Type of Use tariffs. The default tariffs for these technologies should help consumers make the most of them to reduce their bills.

The government said a review of default tariffs is needed ahead of the introduction of market-wide half hourly settlement in April 2025.

Daniel Portis, deputy director at Energy UK, added: “A smart, flexible energy system will bring benefits for all customers.

“Energy suppliers are investing and innovating to meet this challenge with new products and services that help their customers have more control over their bills and take advantage of times when energy is cheapest.”

As well as launching the call for input on default tariffs, the government has also launched a new scheme to help customers repair or replace smart meter in-home displays after the one-year warranty.

Eight suppliers, covering the majority (60%) of the market, have signed up so far, including E, Eon, Good Energy, Octopus, Ovo, Scottish Power, Utilita and Utility Warehouse.

The measures have been announced after Ofgem confirmed the price cap will fall by £238 from April, taking it to its lowest level in two years.

Energy secretary Claire Coutinho said: “Today’s announcement that energy bills will fall by £238 on average will be welcome news for families across the country. This means households will be paying the lowest cost for their energy since Putin’s illegal invasion of Ukraine two years ago.

“My mission is to cut costs and get bills even lower so that families can spend their money on the things that matter most to them. Today we’re announcing further measures to slash bills for families and improve access to cheaper, flexible deals.”