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Exploring the Pros and Cons of Time-of-Use Electricity Pricing

When it comes to energy, people are always looking for ways to lower the cost. Unlike many other commodities, electricity prices are very volatile. Many factors affect the rate, including how people use electricity.  

Time-of-use plans are a great example of how we as consumers can impact the electricity rate we pay. These plans are designed to encourage people to use energy when there’s lower demand by offering lower rates. 

How Time-of-Use Electricity Pricing Works

First off, let’s clarify what a time-of-use plan is exactly since this is a relatively new option that may be newly available in your marketplace. A time-of-use plan is like a hybrid of a fixed rate plan and a variable rate plan. The rate you pay for electricity depends on the time of day when the electricity is used. 

During times of peak demand electricity rates will be at their highest. When demand is the lowest, that’s when rates will be the lowest. Let’s take a look at a quick example.

In this example, the time-of-use plan has three rate periods: 

Standard rate hours 6am to 2pm – $0.15/kWh

Peak demand hours from 2pm to 9pm – $0.20/kWh

Off-Peak hours from 9pm to 6am – $0.10/kWh

If you use 50% of your electricity during the standard time, 25% during peak demand and 25% during off-peak hours you’d pay an average of $0.15/kWh. But if you used 50% of your electricity during peak demand, 25% during the standard time and 25% during off-peak hours your average rate would be $0.1625/kwh.

This is a very basic example to highlight how the time that electricity is used can have a significant impact on the overall rate that’s paid. 

Research from the Energy Information Agency (EIA) has verified that electricity consumption varies during the day, but the time for peak demand also varies by season. If you sign up for a time-of-use plan make sure you are clear about possible seasonal shifts in the rates. 

Pros of Time-of-Use Electricity Pricing

Many consumers question if the advantages of a time-of-use plan is worth putting in the effort to adjust when electricity is used at home. Convenience isn’t a pro for time-of-use plans, but there are benefits worth considering. 

You Could Save Money on Electricity

The allure of a time-of-use plan isn’t convenience, it’s the potential savings. Households that are able to minimize electricity use during peak demand hours should be able to lower their bill compared to having a plan with a standard fixed rate. If you currently use a fair amount of energy between the hours of 2pm and 9pm and are able to make adjustments, you stand to save the most. However, if you primarily use electricity in the off-peak hours the decrease will be less noticeable. 

You Help Reduce Electric Grid Strain 

When consumers are mindful about decreasing energy use during peak demand hours it helps to reduce strain on the electric grid. A more stable electric grid is beneficial for all energy users since it’s easier to operate and maintain.  

It Reduces the Possibility of Brownouts and Black Outs

When the electric grid is stable and demand is reduced, you’re much less likely to experience an unexpected brownout or black out. During the sweltering summer months brownouts and black outs aren’t just uncomfortable. They can actually be harmful to a person’s health. 

Cons of Time-of-Use Electricity Pricing

A time-of-use plan is a great concept, but it’s not ideal for all energy users. A lot of the benefits depend on you as an energy consumer being very mindful about when you are using electricity. If you aren’t, there could be some serious downsides.

You Could End Up Spending More Money on Electricity

Reducing costs with a time-of-use plan is all about timing electric use right. If you use energy at the wrong times it could actually end up increasing the cost of electricity, even if you’re offered free electricity on nights and weekends. It’s important to analyze your household electricity use first to determine if you’ll be able to adjust the times you use energy and if those adjustments will be enough to lower energy bills. 

You Have to Adjust Your Lifestyle

Reducing electricity costs with a time-of-use plan usually means making some lifestyle adjustments because you have to avoid using energy at certain times of the day. For instance, instead of taking a hot shower right after dinner you may need to wait an hour or two for off-peak hours to begin. You may also have to change your laundry day to the weekend when electricity demand is much lower. 

The point is, when you sign up for a time-of-use plan you’re signing up to take an active role in planning out when electricity is used. You may realize that it’s easier to find low to no-cost ways to decrease energy use automatically than to adjust when energy is used.  

Less Predictability and Price Stability

Because the rate varies, time-of-use plan pricing isn’t as predictable as a fixed rate plan. Even if you use the same amount of electricity from month-to-month the monthly cost could still be dramatically different because of the time-based tiered rate structure. 

With Spark Energy you know you’re getting a reliable electricity plan with rates that aren’t inflated no matter what plan you sign up for. Use your city or zip code to find available Spark Energy plans in seconds.

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