Exactly when Australians consume electricity is becoming more important these days as time-of-use rates, with different prices throughout the day, grow in popularity.

But while there are savings for people willing to keep a close eye on their energy use, those who are caught unaware or have less energy efficient homes can be worse off.

So, what are time-of-use rates; how can they save you money, and what does the research tell us about how they affect households?

Time-of-use electricity

Time-of-use electricity plans are ones where energy prices vary throughout the day, as opposed to a flat rate plan that has one price.

Plans differ between retailers and distribution zones, but typically there are three distinct rates – a peak price, an off-peak price and a shoulder price that is typically somewhere between the two.

The off-peak price is the lowest and typically cheaper than what’s charged on a flat rate, applying to periods when there is less demand on the grid, such as overnight.

This contrasts to peak rates – often during the evening between 5pm and 8pm – when a higher rate is charged as demand spikes, said University of Sydney senior lecturer Lee White.

“The evening peaks are more expensive, driven by a need to turn on gas peaking plants when everyone comes home from work and turns their heating on or starts cooking,” White said.

“Typically, time-of-use rates have more expensive electricity in the evening.”

There is also a shoulder rate, which is often charged in the middle of the day, and can be slightly lower than flat rate prices. This reflects more plentiful energy in the grid at this time.

The idea with time-of-use rates is to provide an economic incentive for people to consume more power when it’s cheaper to produce and cut back when grid demand is greatest.

Transparency, energy efficiency key

But the devil is in the detail, White said, because research shows it can be difficult for consumers to understand what prices are being charged when and shift their consumption.

Furthermore, recent research done by White highlighted the importance of household energy efficiency for those on time-of-use rates, with customers in less efficient properties sacrificing comfort to reduce their consumption at peak times.

“The amount of heating you need to use to keep your home comfortable depends on how efficient your house is,” he said.

“You might have even more of an uncontrollable peak when you turn on your heat, whereas in an efficient home you can pre-heat or pre-cool.”

Complicating matters, there’s been concerning reports in recent months that some families aren’t even aware they’re on time-of-use tariffs, which means their bills are far higher.

White said the reports, most recently highlighted by the Australian Competition and Consumer Commission (ACCC), are “really concerning”.

“We know there’s an economic incentive designed to encourage behavioural change, but if you don’t know you’re on that rate of course you can’t change your behavior,” White said.

What to consider

If you’re thinking about trying a time-of-use electricity plan, there are a few things to consider.

First, you’ll want to work out what your energy use profile looks like ahead of time, White said.

“To make an informed decision you really need to know what the peaks and troughs of your household’s own electricity use are,” White said.

“That’s hard to do unless you have something like a smart meter and access to your own data.”

If you’re someone who uses more energy at home overnight or even during the middle of the day – such as working from home – then time-of-use rates could save you money.

But be careful, because you’ll be paying more for power at peak times when most families need to be doing daily chores like cooking, as well as heating the house more when it gets colder.

Ultimately, customers on time-of-use rates will save the most money by keeping a close eye on their consumption patterns and doing their best to minimise their energy use in pricy peak times.

That might include running the dishwasher or laundry during the day or overnight; or leaving the AC or heating on overnight and then turning it off during the day if your home retains temperature.