For households and businesses, dynamic pricing opens the door to substantial savings by encouraging energy use at off-peak periods when prices are lower. But there are considerations too.
Dynamic electricity tariffs are due to launch in Ireland next year and could be a game changer in how we use and pay for our electricity.
In this guide we take a look at how this new type of tariff works as well as the pros and cons for households to consider.
What is a dynamic electricity tariff?
A dynamic electricity tariff is a type of tariff where the price of electricity varies throughout the day based on the price of electricity on the Irish wholesale market. It’s like a more advanced form of a time-of-use tariff that you get with a smart meter.
With a standard time-of-use tariff, the price of your electricity changes depending on whether you’re using your electricity at peak hours, off-peak hours, or at night. So you have three prices that you will be charged. But these are set prices that won’t change regularly. Perhaps only every few months, if at all, during the term of your contract.
But with a dynamic electricity tariff the price for your electricity will change every half hour in line with price changes in the wholesale electricity market. For this reason, dynamic pricing is often referred to as “real-time pricing”.
How exactly will dynamic electricity tariffs work?
The wholesale price of electricity is always known at least 24 hours in advance.
So if you sign up to a dynamic tariff, each day you’ll be able to see the wholesale price of electricity that will apply during each half-hour interval of the next day. This will likely be available through each supplier’s app but this still needs to to be confirmed.
You can then adjust your behaviour and electricity consumption accordingly.
So for example you might see on Monday afternoon that the price of electricity is going to be very cheap between 1pm and 3pm on Tuesday due to forecast low demand and excess renewable energy on the grid due to lots of wind. You can then try use this time to put on a wash, dry some clothes, use the dishwasher or cook dinner etc.
Dynamic electricity tariff pricing
The price you pay for your electricity will consist of three components. Two of which are fixed and one of which is the dynamic price that tracks the wholesale price of electricity.
- A standing charge – this is a fixed amount that is charged, regardless of your energy consumption or the wholesale price of electricity. So similar to the daily standing charge that all suppliers charge at present.
- A base unit rate charge – this is a fixed amount that is charged for each unit of electricity that you use regardless of the wholesale price of electricity.
- A dynamic unit rate charge – this is a variable amount that changes in each half-hour period of the day and is charged for each unit of electricity you use.
So no matter how cheap the wholesale price of electricity may get, and sometimes on very windy days during the night it can get close to zero, there will always be a price floor under which the cost of your electricity won’t go i.e. the standing charge plus the base unit rate charge.
On the flip side, sometimes there can be short-lived extremely high spikes in the wholesale price of electricity.
To ensure households aren't faced with sky-high prices for their electricity the CRU has required suppliers to implement two measures.
- A price cap: excessive peaks in the dynamic component of the price are capped so that they cannot exceed a market-wide threshold.
- A price spike alert: suppliers must provide customers with the capability to be alerted the day before a significant spike in prices occurs.
The pros of dynamic tariffs
- Ability to save money - households can potentially save money by moving their electricity consumption to times when electricity is cheaper. This is particularly true for households that have appliances that are big energy guzzlers e.g. electric vehicles and tumble dryers.
- Wider cost savings for everyone - by incentivising household to shift their consumption away from times of high demand and high prices, dynamic pricing has the potential to lower peak demand. This can help reduce the price of electricity at peak times, which benefits everyone. What's more, by reducing demand at peak times, there is a reduction over the longer term in the need for additional network infrastructure to support higher peak volumes.
- Less pressure on the grid - by encouraging households to use electricity when it’s cheaper and in abundance, less pressure will be placed on the grid, reducing the threat of blackouts.
- Environmental benefits - less pressure on the grid means fewer carbon emissions. Encouraging households to use electricity when there is more renewable electricity available helps avoid the need for electricity that comes from fossil fuel plants.
The cons of dynamic tariffs
- Potential to overpay - it's possible you could end up paying more for your electricity if you're unable to move your consumption to times of the day when it's cheaper.
- Inconvenience - some people may find it inconvenient to have to constantly monitor the price of electricity.
- If you live in a small household and don't have big appliances like an electric vehicle or a tumble dryer, the potential savings may not be worth it.
When will dynamic tariffs become available and who will offer them?
The CRU has mandated that all suppliers with over 200,000 electricity customers must offer the option of a dynamic electricity tariff to their customers before 1st October 2025.
The five suppliers with at least this number of electricity customers are Bord Gáis Energy, Electric Ireland, Energia, PrePay Power/Yuno and SSE Airtricity.
Other suppliers are of course free to offer a dynamic tariff if they wish but they’re under no obligation to do so for now.
Is a dynamic tariff a good option for me?
This type of tariff definitely isn’t suitable for everyone. At least not for now.
A lot of people get comfort in knowing what the price of their utilities will be as it helps them budget. This is partly why fixed-rate mortgages have become so popular in recent years - people like certainty.
With a dynamic electricity tariff the price of your electricity and therefore your bills could fluctuate quite wildly each month depending on a host of different factors. And if you live in a busy family, it may be difficult for you to move your energy usage to times of the day or days of the week when it's more affordable. Sometimes the kids need to be fed straight away or the hot water put on for a shower immediately.
Quite simply, not everyone is an ‘energy nerd’ who has the time and patience to monitor the daily wholesale price of electricity and then remember to put on a wash or the tumble dryer at the right half-hourly interval.
However, for households that enjoy actively monitoring their energy usage, and which have the flexibility to move their usage to different times of the day or night, there is an opportunity to make cost savings on their electricity bills with this type of plan.
