Free electricity this past week! What’s going on?

Last week was a great illustration of the benefits of being on a smart tariff. Due to the windy weather - combined with sunny skies - UK electricity prices dropped to zero over many hours, for several days in a row. In fact, there were a few hours with “negative pricing”, meaning you could get paid to use electricity at home!

Near-zero cost electricity for 40% of the time over 5 days: 47 hours of almost-zero, zero, or negative pricing, with an average rate of imported electricity of 8.32p/kWh (compared to 23.53p/kWh under a standard variable tariff)*

This was the situation for those on the Octopus Agile tariff, which is a dynamic time-of-use tariff whereby the price of electricity changes every half hour - with prices published for the next 24 hours around 4pm the day before. This tariff essentially tracks the wholesale cost of electricity, which is affected by predictable daily cycles (such as when many families cook their evening meal) but also unpredictable fluctuations in the output of wind and solar farms.

On windy, sunny days with no heating demand - such as what we saw last week - there is so much low-cost renewable energy available that the wholesale price of electricity goes very low. In some cases, it even goes negative because renewable energy generators have contracts that require payment for whatever they generate.

Getting paid to use electricity: there were several hours on Sunday, 25 August 2024 with negative pricing.*

In the summertime, you see this phenomenon frequently in the daytime hours (11am to around 4pm), due to the addition of solar, whereas in the winter it tends to happen more in the middle of the night or on the weekends, where the driving force is strong wind output.

The whole point of smart, time-of-use tariffs is to encourage you to use less electricity when it’s expensive to generate, but also to use more of it when there is a surplus. Ideally, households are incentivised to shift activities that aren’t time-critical - such as charging their electric vehicle (EV), heating their hot water tank, or running the dishwasher - to these super cheap hours. By doing so, people can make very substantial savings on their electricity bills while also supporting the transition to green energy.

As we continue to increase the amount of wind and solar capacity in the UK - and in neighbouring countries, with whom we import and export power - we need homes and businesses to become more and more flexible in their consumption to soak up any excess renewable energy generation and cut back when it is scarce. This will help minimise our use of gas power with its associated greenhouse gas emissions, and the cost of energy storage.

The great thing about being on a smart tariff is that you’re actually doing the grid a favour by using your devices during these zero cost hours. Imagine that? Free electricity and a clear conscience!

*All tariff information quoted is for the London region. Prices will differ slightly in the other 13 electricity distribution regions across the UK, although the trends will be the same.