By June this year, Ireland’s largest electricity suppliers will be required to offer households a new type of tariff: one where the price of electricity changes hour by hour, reflecting conditions on the electricity system. These so-called “dynamic tariffs” represent a fundamental change in how our electricity system works, and how we all participate in it.
Electricity bills are getting more complicated because the electricity grid is getting more interesting.
Historically, electricity systems were designed in a linear way. Large, centralised power stations generated electricity, which flowed one-way to consumers whenever they needed it. The system was planned around peak demand – the cold, dark winter evening when everyone comes home, turns on the lights, cooks dinner and puts on the kettle.
Fossil fuels, which store vast amounts of energy that can be called on at any moment, were perfectly suited to this model.
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As we move to an electricity system dominated by wind and solar, that paradigm is being turned on its head. The electricity system must still meet demand every second of the year, but it also must manage a supply of energy that is variable and weather-dependent. This is why the concept of “flexibility” is essential for making a renewables-based electricity system work.
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Flexibility can come from several places. Currently, we rely mainly on flexible gas-fired power plants – though these must be phased out if we are serious about climate targets and energy security. We are also building electricity interconnectors to other countries, sharing electricity across borders.
We can also build storage such as batteries, though this remains expensive at scale. And crucially, flexibility can also come from the demand side, from when we choose to use electricity. By shifting demand to times when renewables are abundant, and away from times when gas is necessary, the electricity grid can become more efficient, cleaner and cheaper for everyone.
Whether electricity is scarce or plentiful, clean or carbon-intensive, the price at the socket looks the same
Dynamic tariffs are a mechanism to nudge households to shift their electricity use to times when it is cheaper and cleaner.
Currently, wholesale electricity prices mostly follow demand patterns. Prices are highest during predictable peaks when “peaker plants” – typically inefficient and highly polluting fossil fuel generators – are switched on to meet spikes in demand. The more these plants run, the more everyone pays, because their costs, including the cost of keeping them on standby, and carbon and grid costs, are baked into electricity bills.
As renewables grow, wholesale electricity prices also increasingly reflect the weather, and tend to be lower when wind and solar are abundant.
Traditional flat electricity tariffs hide this reality from consumers. Whether electricity is scarce or plentiful, clean or carbon-intensive, the price at the socket looks the same. Dynamic tariffs are designed to change that by passing at least some of the real-time conditions of the electricity system through to households.
In simple terms, households which opt in to dynamic tariffs will have access to cheaper electricity when less gas is needed on the system, when overall demand is low or renewables supply is high. Conversely, these households are also signing up to accepting higher electricity prices at other times.
If implemented correctly, the benefits of dynamic tariffs extend beyond those who opt in. Shifting even some consumers’ requirements from costly peak demand will smooth the wholesale price, and over time reduce the need for new generation capacity and costly grid upgrades that everyone ends up paying for.
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But for dynamic tariffs to work, they must offer genuine savings to those who opt in, and protection from higher bills. Clear price caps, protections, and high-price alerts have been planned to avert this.
Dynamic tariffs are designed to contribute to solving a real problem: our continued reliance on fossil gas when renewable generation is low
Dynamic tariffs are not suitable for every household. If most of your electricity use is fixed at peak times, bills could rise. These tariffs make most sense where there are genuinely flexible loads: electric vehicles, immersion heaters or heat pumps.
Most important is automation. The novelty of manually responding to price signals will wear thin very quickly. The success of dynamic tariffs cannot rely on people constantly thinking about electricity. The biggest gains come when systems respond automatically: EV chargers that charge when prices are low; heat pumps that gently preheat a home ahead of an expensive period; appliances that shift without anyone noticing. Home batteries make this much easier, soaking up cheap electricity and releasing it later.
This all sounds sensible, even hopeful. But it would be dishonest to ignore the uncomfortable context.
Dynamic tariffs are designed to contribute to solving a real problem: our continued reliance on fossil gas when renewable generation is low.
Yet at the same time, Ireland is pressing ahead with significant new gas-fired generation, largely to serve the explosive growth of data centres, and also the Government is planning to shore up gas supply through LNG infrastructure. The more gas is used as a source of “flexibility”, the more the economic case for clean alternatives is undermined.
In a system awash with gas, flexibility loses value.
The point is not to make life more complicated, or less comfortable, but the opposite. A smarter system can be cleaner, cheaper and more resilient – if we choose to build it that way.
