‘Effectively free’ electricity could help cut UK household bills

A major new report says the Government should encourage more people to use time-varying electricity tariffs, allowing households to pay less when electricity is cheaper to produce.

Researchers found the cost of generating electricity can vary “a lot” depending on where and when it is produced.

But most households do not currently pay prices that reflect these huge differences.

The Institute for Fiscal Studies (IFS) and London School of Economics (LSE) report, published as part of the IFS Green Budget and funded by the Nuffield Foundation, says there are times when renewable power is so plentiful that electricity can be “effectively free”.

Electricity can be ‘effectively free’

Scotland is highlighted as a striking example.

Frequent windy weather can generate huge amounts of electricity from wind turbines.

At times, there can be so much power being produced that the grid operator has to pay wind farms to switch turbines off to prevent the electricity network from becoming overloaded.

But the picture can be very different elsewhere.

At other times, particularly in the south of England, the electricity system may need to pay expensive gas generators to increase their output to meet demand.

The researchers argue that households should be given stronger incentives to use electricity when it is cheaper to produce.

Your washing machine could become cheaper to run

One option suggested in the report is making time-varying electricity tariffs the default household deal.

This would mean electricity prices could change depending on the cost of producing power at different times.

Households could then potentially save money by shifting some of their electricity use to cheaper periods.

That could mean charging an electric car, running a washing machine or using other appliances when electricity is cheapest.

The report says the potential savings could become increasingly significant as more households adopt electric vehicles and technologies that can automatically move electricity use to cheaper times.

The Government has ruled out regional electricity markets, known as zonal pricing, but the researchers say there are other ways to bring household electricity prices closer to the underlying cost of producing power.

They also suggest changing subsidies for low-carbon technologies.

This could include relatively higher subsidies for electric heat pumps in areas where electricity is cheaper to produce, and greater support for solar panels in areas where demand is more likely to be met by gas generators.

“Why are bills UP £300 when they were meant to be DOWN £300?” Martin puts your first question to Energy Secretary @Miatsf

For more inc on standing charges, green policy, regional pricing, and Jan’s predicted 24% price hike. Watch the full energy bills special on… pic.twitter.com/0tVWHCrprj

— Martin Lewis (@MartinSLewis) September 17, 2026

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Electricity bills remain high

The report comes as households continue to face high electricity costs.

Researchers say the cost of balancing supply and demand is projected to double in real terms by the end of the decade to £7 billion.

They argue that improving the efficiency of the UK’s electricity system could help reduce some of the cost-of-living pressure caused by high electricity prices.

Bobbie Upton, research economist at the IFS and a co-author of the report, said: “Encouraging greater take-up of time-varying electricity prices could lower electricity bills for consumers with minimal cost to the Government.

Britain can have so much wind power that electricity is “effectively free”. (Image: Owen Humphreys/PA Wire)

“The extent of savings would depend on how enthusiastically consumers adopted time-varying contracts and then adjusted when they consumed electricity.

“But evidence suggests savings are possible, with the potential savings increasing significantly as more households adopt electric vehicles and technology that automatically shifts consumption to times when prices are low.

“Looking ahead, high electricity prices look set to be with us for many years to come. Improving the efficiency of the electricity market would have a long-run pay-off.”

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Mark Franks, director of welfare at the Nuffield Foundation, said: “Electricity prices matter for all households, but they are particularly important for those on low incomes.

“Energy bills account for a much higher proportion of spending among poorer households, and uncertainty about possible future price rises creates anxiety within families already operating with very little financial headroom.

“Any credible options for reducing the costs faced by consumers, particularly the most vulnerable, should therefore be considered carefully by government.”