Apr 16th, 2024 | Energy

What dynamic electricity tariffs are all about - and how it can help you save smartly

Dynamic electricity tariffs make it possible to benefit from daily price fluctuations on the energy market. In this article, we explain how this works and how you can make the most of the savings potential that dynamic tariffs provide.

What is a dynamic electricity tariff?

A dynamic electricity tariff refers to a form of electricity billing where the cost of electric energy can vary depending on the current energy market’s demand and supply. Unlike conventional electricity tariffs, where the price of electricity is constant or set at fixed intervals, the price of dynamic tariffs changes in line with price fluctuations on the electricity exchange.

Electricity is traded on the energy exchange, which means that the price of electricity fluctuates hourly or even more frequently, depending on the development of supply and demand. As a result, the price of electricity can even be negative at night or during hours with increased supply of renewable energy (such as solar or wind).

More control over electricity consumption

With a dynamic electricity tariff, the price component that you pay as a customer for electricity delivery is linked to the exchange market’s electricity price. However, the price components that have to be paid to the state and the grid or metering point operator are not subject to change. As the exchange announces one day in advance what the electricity price will be the next day, you have the opportunity to plan your consumption accordingly. 

The idea behind dynamic electricity tariffs is to encourage consumers to shift their energy consumption to periods of low demand in order to save costs and use the electricity grid more efficiently, making better use of renewable energy in particular. In periods of low demand, electricity can be cheaper, while in times of high demand it becomes more expensive.

In May 2023, the German government passed the law to restart the digitalization of the energy transition (GNDEW). One of the new obligations is for energy suppliers to offer dynamic electricity tariffs. Currently, electricity suppliers with over 100,000 customers must already offer dynamic tariffs. From 2025, this will apply to all electricity suppliers (even those with fewer customers).

The advantages over regular tariffs

Dynamic electricity tariffs offer a number of potential advantages compared to regular tariffs. One good reason to opt for a dynamic electricity tariff is the cost savings: during periods of low demand on the energy market, the price of electricity can be lower with dynamic tariffs. Consumers who adjust their energy consumption habits and shift their electricity-intensive activities to these times can save money. Cost savings can be realized in particular if you have flexible consumers in your household, such as an electric car or a heat pump. 

Dynamic tariffs also create an incentive to shift energy consumption to times of lower demand. This can contribute to a more efficient use of the electricity grid, as the load is distributed more evenly across the grid. 

The high level of flexibility is also a good argument for considering a switch: consumers have the opportunity to manage their energy consumption more flexibly. Dynamic tariffs can make consumers more aware of their energy consumption and encourage them to take energy-efficient measures. However, there is also a certain price risk involved, because if electricity prices rise sharply, the costs for the customer will also increase.

Who benefits from dynamic tariffs?

With a dynamic electricity tariff, consumers are directly contributing to their energy transition.  This primarily includes consumers with flexible consumption habits. Those who are flexible and can shift their electricity-intensive activities to times of low demand can achieve significant cost savings. For example, this could be households that run their washing machine or dishwasher at night. Households that already use smart home technology to monitor and control their energy consumption can also benefit from dynamic tariffs. These technologies make it possible to optimize the operation of appliances and plan consumption at times when prices are lower.

7 tips on how to save with a dynamic electricity tariff:

Saving with a dynamic electricity tariff requires conscious management of energy consumption in order to benefit from variable electricity prices. Here are some strategies consumers can use to save money with a dynamic tariff:

1. Load shifting
Use electricity-intensive activities during periods when electricity prices are low. Many dynamic tariffs have periods of low demand when electricity is cheaper.

2. Use timers
Automate the operation of appliances using timers to ensure they operate during low-cost periods.

3. Energy efficient appliances
Invest in energy efficient appliances that use less electricity overall. This helps to reduce costs regardless of variable tariffs.

4. Use smart home technology
Smart thermostats, smart home systems and other technologies can help you monitor and control energy consumption.

5. Conscious energy consumption
Make sure you switch off non-essential appliances and avoid wasting energy. This will help to reduce overall consumption.

6. Contractual adjustments
Check whether your provider offers options for individual agreements, such as the ability to adjust the tariff to suit your lifestyle.

7. Check tariff information
Find out the specific terms and time slots for variable pricing in your dynamic tariff. Plan your activities accordingly.

How does billing work?

A dynamic electricity tariff is billed based on variable prices depending on the energy market’s current supply and demand. Smart meters or other measuring devices are used to measure the actual electricity consumption in kilowatt hours (kWh). Electricity prices are set by the energy provider at different times or time intervals and may vary depending on the contract conditions. During the billing cycle, the energy provider creates a bill that multiplies the amount of energy used by the respective electricity prices. At the end of this cycle, consumers receive a detailed bill that breaks down the total cost of their electricity consumption, taking into account the variable tariffs.

In order to better understand billing and benefit financially, it is crucial to know the dynamics of variable prices and adjust your own energy consumption accordingly.

What needs to be taken into account when changing

If you already have an existing electricity contract, check the termination conditions and clarify whether there are any costs for early termination of the contract. Find out from your current provider about your intention to switch and, if necessary, cancel the existing contract.

Once you have decided on a dynamic tariff, you conclude the contract with the new provider. This can be done online, over the phone or in person. Make sure you understand all the terms and conditions of the contract and clarify any questions you may have.

Technical requirements at a glance

The use of dynamic electricity tariffs requires certain technical requirements in order to effectively monitor and control energy consumption. Here are some important technical aspects:

Smart meter: The installation of a smart meter is often a prerequisite for dynamic electricity tariffs. These digital electricity meters record energy consumption in real time and allow the energy provider to set variable prices based on current demand and supply. However, there are also dynamic tariffs without smart meters. The consumption is estimated or read by the customer and average prices of the exchange prices are formed.

Smart home technology: Integrating smart home technologies can also be beneficial. Smart thermostats, sockets, lighting systems and other connected devices enable consumers to monitor and remotely optimize energy consumption.

Real-time communication: The ability to have real-time communication between the smart meter, smart devices and the energy provider is important. This communication enables the provider to set the variable electricity price depending on the current network load and to inform consumers about price fluctuations.

App or online platform: Many energy providers offer apps or online platforms that consumers can use to monitor their energy consumption. These platforms often also provide information about current electricity prices and allow consumers to adjust their energy consumption habits.

Remote controllability of devices: Some dynamic tariffs allow the energy provider to remotely control certain electricity-consuming devices. This may require special technologies that allow the provider to optimize the operation of equipment to ensure network stability.