Time of use tariffs explained simply

If you've received a letter from your retailer offering to switch you to a "smart tariff" or "time of use plan," you might be wondering whether to accept. The answer depends on your household — and this guide will help you work it out.

What is a time of use tariff?

A time-of-use (TOU) tariff charges different rates for electricity depending on when you use it. Typically there are three periods:

• Peak (typically 3pm–9pm on weekdays): the most expensive rate, often 40–55 cents per kWh. This is when demand on the grid is highest.
• Shoulder (mornings and some evenings): a mid-range rate, often 20–25 cents per kWh.
• Off-peak (overnight and weekends): the lowest rate, often 12–18 cents per kWh.

Compare this to a flat rate plan, which charges the same rate (usually 26–32 cents per kWh) regardless of when you use electricity.

Do you need a smart meter?

Yes. TOU plans require an interval meter (commonly called a smart meter) that can record your usage in 30-minute intervals. In Victoria, smart meters are already installed in almost every home. In NSW and other states, you may need to request an upgrade, which is typically free.

Who benefits from a TOU plan?

TOU plans work well for households that can shift electricity use away from peak periods. You'll likely benefit if you:

• Have rooftop solar (you use less grid electricity during the day, and can run appliances off solar before the 3pm peak window)
• Have a battery storage system (store solar or off-peak power; use it during peak periods)
• Have an electric vehicle (charge overnight at off-peak rates)
• Have flexible appliances like a pool pump, dishwasher, or washing machine that can be scheduled to run overnight

Who should probably stick with flat rate?

TOU plans can actually cost more if you're unable to shift your usage. This is particularly true for:

• Households where people are home in the afternoon (e.g. families with young children, people who work from home)
• Renters who can't control when appliances run or don't have solar
• Small households with low overall usage (the savings from shifting aren't large enough to matter)

A real example: which is cheaper?

Suppose a household uses 5,500 kWh per year. On a flat rate plan at 28.5¢/kWh:

5,500 kWh × $0.285 = $1,567.50 annual usage cost

On a TOU plan (55% peak at 46¢, 20% shoulder at 22¢, 25% off-peak at 15¢):

3,025 × $0.46 + 1,100 × $0.22 + 1,375 × $0.15 = $1,848.25 annual usage cost

In this example with no usage shifting, the TOU plan costs $281 more per year. But if the household can shift 30% of peak usage to off-peak, the TOU plan becomes competitive.

The bottom line

TOU tariffs are a powerful tool for the right household, but they're not automatically better for everyone. Before switching, understand your usage patterns. If most of your electricity use happens in the afternoon and evening with no easy way to shift it, stay on flat rate. If you have solar, an EV, or flexible appliances, TOU is worth investigating seriously.

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