Why are tracker tariffs so important?
11th May 2017
A tariff that tracks the wholesale cost of energy helps solve the problems of affordability, availability, and sustainability in energy, otherwise known as the “energy trilemma”, and could be great for customers.
The first ever tariff to do this is our Octopus Tracker, which updates the wholesale price on a daily basis. But the target is to get down to half-hourly updates – the exact interval of each published change in the market.
When demand for energy is high, energy costs more, and it’s an expensive challenge for National Grid to keep up. When demand is low, energy costs less but the grid’s problems persist – too much generation is as difficult to manage as too little.
The rules of supply and demand change the wholesale energy price every half hour. Customers on fixed deals or Standard Variable Tariffs will sometimes pay more than the wholesale price and sometimes less. But in the long run, it costs customers more as suppliers are charged a premium to hedge against the changes in the wholesale market.
Our Data Scientist, David Sykes, shows in the video below just how much customers would’ve saved had they been on Octopus Tracker against Big Six Standard Variable Tariffs.
Most people want long term value, to pay the real cost of energy, not simply a hedged bet or loss-leading tariff that skyrockets when they forget to switch. Knowing the cost lets you use energy wisely – only turning on power-hungry appliances when the price is right for you.
And as prices are driven by the availability of energy, a tracker tariff creates an incentive to shift demand to manageable times. The long-tail effect is that energy is cheaper to manage (which will reduce customer bills), renewables are easier to integrate (the sustainability part of the trillema), and the network is more resilient.
Customers can use the tracker tariff to determine how much it’ll cost to turn on their washing machine. Assuming pricing changes half hourly, customers can take advantage of cheaper rates. Even daily changes are enough to exploit cheaper prices. But anything longer and you're at risk of being stuck at higher prices when the market falls.
At the moment, our Octopus Tracker displays your charges through a simple user interface that you can view on our app or online, but in the future, your smart appliances will decide the most cost-effective time to switch on. You won't even have to think about it. And you won't become a slave to the wholesale market – just turning off the heating element in your washing machine for a minute makes a huge difference when multiplied by thousands of households.
Tracker tariffs ensure customers get long term value, without the hassle of shopping around for a good deal. It could end the need for switching completely, and bring stability and security to the energy network. Octopus Tracker shows a breakdown of your charges, including our mark-up, and this kind of transparency creates trust and happiness for all.
We need to move to low-carbon energy to protect the planet. Tracker tariffs allow us to do this while also saving money for customers. If you’d like to be among the first people in the UK to get Octopus Tracker, join the Octopus Tracker waiting list.
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