Report: Time-varying electricity tariffs could cut UK household bills

# What the report found

Because conditions such as high winds make power abundant in places like Scotland at certain times, generation can be very cheap and grid operators sometimes pay to curtail wind output. At other times and places—for example, during peak demand in the south of England—more expensive gas-fired plants are called on, raising system costs.

The IFS/LSE analysis shows that aligning customer prices with when and where power is cheap would give households stronger financial reason to shift flexible uses—charging EVs, running washing machines, or charging batteries—to lower-cost periods. That behavioural change is the mechanism by which consumer bills would fall.

# Practical policy options the report highlights

• Make time-varying tariffs the default for standard domestic customers rather than leaving most on flat rates.

• Increase solar subsidy levels in regions where demand is more likely to be met by gas generators, to reduce reliance on expensive gas during peak times.

Each option aims to better match household incentives with the actual costs the system faces at different times and places.

# Cost context and system pressures The report notes that national expenses for balancing supply and demand are forecast to increase substantially, with balancing costs expected to double in real terms by the end of the decade to around £7 billion. Those rising system costs mean inefficient pricing now becomes a more visible source of higher consumer bills unless the market and tariffs are reformed.

The authors also argue that a more measured approach to decarbonisation of electricity over the rest of the decade could reduce total costs of achieving net zero, by avoiding an over-reliance on rapid electrification where it is expensive.

# What consumers would need to do Households would need to adopt time-varying contracts and change consumption patterns to benefit. The report finds the scale of savings depends on how readily consumers accept such contracts and whether they or their appliances shift usage automatically to cheaper periods. Savings become larger as more homes adopt electric vehicles and smart technology that can automatically schedule charging for low-price windows.

# Equity and vulnerability The report raises the distributional concern that energy price structures matter most for low-income households, who spend a higher share of income on energy. Targeted policies—such as subsidies aimed at vulnerable groups or regional measures that reduce cost exposure—are mentioned as ways to limit harm to households with little financial headroom.

# Takeaway for policy makers and households Policy makers can reduce household energy costs by reforming tariffs so customer payments reflect real-time and regional generation costs, pairing tariff reform with targeted subsidy programs. For households, switching to time-varying contracts and using flexible technologies or smart controls would be the practical route to lower bills.