Distributional and Economy-Wide Impacts of Social and Flexible Tariffs

Funder

Engineering and Physical Sciences Research Council (EPSRC), Economic and Social Research Council (ESRC)

Timeframe

January 2025 – December 2026

Overview

The Centre for Energy Policy led this project to explore the impacts of new energy tariffs using the UKENVI Computable General Equilibrium (CGE) economy-wide scenario simulation framework. This project is part of UKERC’s Current Research: Affordability, Justice, and Economic Impacts, led by Jess Britton. It focuses on understanding the impacts and opportunities of net zero energy systems for households, communities, wider society, and the economy as a whole to ensure a fair and timely energy transition.

Read the project blog for more information.

 

CEP research will focus on exploring two main types of energy tariffs:

Social Tariffs

A social tariff is a scheme that offers discounted rates to specific customers, which has the potential to help reduce fuel poverty and improve energy affordability and equity. These tariffs are typically subsidised by the government or energy providers and are designed to ensure that essential energy services remain affordable for those who struggle to pay standard rates. While this could benefit eligible households, there are potential drawbacks. If the cost of these discounts is passed on through higher standard tariffs for all or some users, it could push households outside the target group into fuel poverty or reduce the spending power of higher-income households.

CEP research will explore how various levels of social tariffs may influence fuel poverty levels and the impact on real disposable incomes. This will help to understand the balance between support for vulnerable groups and the potential unintended consequences.


Flexible Tariffs

Also known as smart, dynamic or time-of-use (TOU) tariffs, they offer a more flexible approach to pricing by adjusting rates based on demand and supply conditions. These tariffs could enable smarter energy supply and demand management, reducing system costs and lowering user bills. Scenarios will examine how different flexibility savings could affect disposable incomes, household spending, and employment levels. The research will be co-developed in collaboration with UKERC’s Current Research: Operating a Highly Renewable and Largely Electrified Energy System and the UKERC SEHT project while engaging with EDRC Flexibility and Equity themes.

 

Partners

UK Energy Research Centre (UKERC)