Time of use vs single rate tariff

The majority of energy plans come with a single rate: electricity costs the same no matter when you use it. But some energy plans let you choose a time of use tariff, which has rates that vary throughout the day.

So what are time of use tariffs, and more importantly, can they save you money compared to a single rate?

Note: The off-peak time examples in the video above are based on the Ausgrid Network in New South Wales.

What is a time of use tariff?

A time of use tariff is based on the idea that you can save money on your power bill by adjusting your energy usage habits. Under this tariff, you:

• Pay less for energy used in off-peak periods

• Pay more for energy used in peak periods – up to four times the off-peak rate.

What times are peak periods?

Peak periods vary from state to state, but are usually during afternoons and evenings, when there is a high demand on the network (for example, 2pm-8pm in New South Wales). "Shoulder" rates apply between peak and off-peak periods in most states, except Victoria.

Example: Winter in the Ausgrid network (weekdays)

If you use your power outside of peak times on a time of use tariff, the theory is that you'll spend less overall.

How big a difference does it make in reality, though? Most of the time, the kind of shift required to save with a time of use tariff is unrealistic, and the savings minimal. We've run through some calculations below to illustrate the point.

Single rate vs time of use: Which one is cheaper?

Comparison 1: You use your energy in peak periods 40% of the time

In the following table, we've calculated how much you'd pay per quarter across New South Wales, Queensland and South Australia, depending on your tariff. Here, we're assuming you've used 40% of your energy during peak periods, 30% during the shoulder and 30% during off-peak, which is an achievable shift in energy use habits.

Verdict: Time of use is more expensive if you use energy in peak periods 40% of the time.

Significantly more in South Australia, adding up to an extra $325 or so per year. This is due to the fact that peak power prices can be up to four times more expensive than off-peak rates.

For a time of use tariff to be useful, you'll need to use more energy in off-peak periods.

Comparison 2: You use your energy in peak periods only 20% of the time

Here, we'll repeat the calculation, but this time say you've radically shifted your energy usage towards off-peak periods. Let's assume you have a measly 20% peak usage, 40% shoulder and 40% off-peak.

Verdict: Time of use is cheaper in 2 out of 3 states if you use energy in peak periods only 20% of the time.

In South Australia, you still end up paying more on time of use than you would on a single rate. It's true that the savings in New South Wales would add up to around $250 a year in this scenario, but this is an extreme case.

The question then becomes, assuming you live in a state where you stand to save money on a time of use tariff, how realistic is something like an 80/20 energy split? We explore this below.

What about Victoria?

You may have noticed that we've left Victoria out of our calculations in the sections above. That's because the energy market in Victoria is a bit different from the other states.

For one, it doesn't have shoulder periods, so all use is either peak or off-peak on a time of use tariff. Two, it's had smart meters for a while and retailers have been able to perfect their tariff structures.

Let's do our first calculation again, with 40% peak energy use and 60% off-peak (since there's no shoulder).

Although the rates work out marginally cheaper than in other states, you are still saving barely anything on a time of use tariff over a single rate. Once again, you'd have to shift your energy use even more out of peak periods to see any reasonable savings.

At that point, you would have to question whether it's worth the effort.

Is an 80% off-peak / 20% peak split realistic?

In New South Wales, off-peak energy rates only apply between 10pm and 7am. To achieve this split, you'd have to move the majority of your power use into these hours.

Consider that around 40% of an average household's energy consumption is heating and cooling. How willing are you to only heat or cool your house in the middle of the night, not during the day when you usually need it? You would also need to avoid running your washing machine in the late morning or early evening, confine most of your appliance use to these off-peak hours, and so on.

For most households, shifting their energy use that much would be a huge burden, if it's even possible. With current usage rates, it's difficult to justify, since the amount you stand to save is far less than the effort involved in radically shifting your habits.

Do you have a choice between single rate and time of use?

Yes. So long as you have a smart meter and can choose your power plan, you are eligible to sign up to a time of use tariff. You can switch between plans with one tariff or the other, depending on what you want.