Time-varying electricity tariffs could cut household bills, IFS study suggests

According to research funded by the Nuffield Foundation, the cost of producing electricity in the UK varies dramatically by time and location, yet most households pay uniform rates. In wind-rich Scotland, excess generation can force grid operators to pay to curtail turbines, whereas the south often requires costly gas backup. The report recommends introducing a default time-varying household tariff and tailoring subsidies—higher for heat pumps where wind is cheap and higher for solar where gas generation dominates.

By aligning prices with supply costs, consumers could shift demand to low-price periods, reducing bills and supporting a more efficient system. The authors also warn that balancing costs could double to £7 billion by decade’s end, and a less aggressive net-zero pathway might lower overall decarbonisation expenses. They stress that high electricity prices are likely to persist, making market efficiency reforms a long-term benefit.