Time of use and usage type tariffs for heat pump customers have been launched to support technology adoption in a market where gas heating remains competitive on price.
Britain’s ‘big six’ energy retailers are keen on heat pump tariffs aimed at reducing running costs for the technology. Five companies with a combined share of more than 75% of the UK electricity market are now offering some kind of heat pump tariff.
Usage time and type of use are used in an attempt to improve the economic case for running heat pumps. Households in the UK can access grants to install a heat pump through the government’s Boiler Upgrade Scheme, but the monthly costs of running a heat pump can still be prohibitively high.
Chloé Deparis, associate consultant at LCP Delta, explains pv magazine that both types of heat pump rates are aimed at making heat pumps more competitive in a market where gas is increasingly gaining in price.
“The problem is that gas is still much cheaper than electricity in Britain,” she said. “That’s why energy retailers are addressing the fact that heat pumps can still be too expensive to run. If they want to encourage consumers to install heat pumps, energy retailers must ensure this makes financial sense. There are two ways to do this: with rates for time of use or type of use.”
“Both are two sides of the same coin: the aim is to reduce the operational costs of the heat pump. Which one makes the most sense for the consumer? We have yet to see that.”
Time of use
Three companies, Octopus, EDF and Scottish Power, now offer time-of-use tariffs that reward households for shifting their electricity use to times of low demand. Meanwhile, British Gas and Ovo Energy have introduced a type-of-use tariff. These offer a discounted price per kWh that is exclusively applied to the heat pump’s consumption. Both tariff types are only accessible to households with functioning smart meters.
Scottish Power was the last to launch a time-of-use tariff. The new heat pump tariff offers a reduced rate of GBP 0.15 ($0.19) per kWh when customers use electricity between 11am and 4pm. In promoting the new tariff, Scottish Power argued that heating hot water in the middle of the day, when the average ambient temperature is warmer, is more efficient for households with an air source heat pump.
Octopus Energy’s ‘Cozy Octopus’ tariff offers its heat pump customers an off-peak tariff available during three windows. Customers pay a reduced rate of GBP 0.11 per kWh between 4am and 7pm, 1pm and 4pm and between 10pm and midnight. The heat pump rate also includes a peak rate, with customers charged approximately GBP 0.33 between 4:00 PM and 7:00 PM. The daily rate outside these periods is approximately GBP 0.23.
EDF’s Heat Pump Tracker tariff encourages consumers to shift usage to two off-peak hours. The rate provides six hours of discounted electricity every day, from 4:00 AM to 7:00 AM and from 1:00 PM to 4:00 PM.
Type of use
British Gas is now offering a heat pump tariff for customers who purchase and install an air to water heat pump from energy supplier Centrica. The tariff includes a unit rate of GBP 0.14 per kWh for the electricity used to run a heat pump for the first year. Ovo has a similar deal and charges GBP 0.15 per kWh for heat.
An advantage of usage type pricing, according to Deparis, is that they can be combined with device optimization. While this doesn’t apply to the heat pump rates currently on offer, Deparis says these types of rates are already available for electric vehicles, which could be an indication of how things might develop. “If you look at the EV side, usage type pricing is usually combined with device optimization. This means that the energy retailer can operate the device remotely, within a comfort level determined by the household.”
Another benefit of the utility type is its simplicity for the consumer, as LCP Delta consultant Thomas Barquin explained.
“I think the type-usage rate is the easiest for customers. It is quite clear to them that they get cheap electricity when they use their heat pump. Simple. For the other, customers need to know and remember when to run the heat pump. So it takes a little bit more planning, which they can ultimately do with a heat pump control and being more involved in their heating system,” he said.
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