Using heat pumps flexibly – running them when electricity is cheap and plentiful, and avoiding running them at peak times – is a good thing. It reduces pressure on the electricity grid by smoothing out peaks in demand. It also offers the prospect of lower bills by using ‘time-of-use’ tariffs that offer cheaper electricity at off-peak times. If homes with heat pumps did this consistently day to day, then the National Energy System Operator (NESO) estimates we could avoid significant future energy system costs spread across everyone’s bills.

Nesta has done a lot of work on heat pump flexibility – including real world trials over two winters –  and found that it can be very effective to use heat pumps this way. Having learnt that flexibility is possible, we wanted to understand whether it would actually save households money. Could using a heat pump flexibly, while using a time-of-use tariff (where the price of your electricity varies depending on when you use it) reduce energy bills?

We commissioned energy experts Cornwall Insights to look at this question, and we found something we didn’t expect: even if you don’t flex your heat pump, you can still save money just by using a time-of-use tariff. In Cornwall’s model, just being on a flexible tariff – which is settled on a half-hourly basis – saved heat pump users up to £600 per year compared to being on a standard tariff, which is settled on the standard profile classes. 

This is not to say that you shouldn’t use a heat pump flexibly – you can save more money if you do flex, and more still if you have a battery or solar. But the finding that just being on a time-of-use tariff saves a heat pump user money is significant, because not everyone can or wants to flex their heating. It opens up a way for heat pumps to be much cheaper to run than we thought, with or without shifting when you use your heating.

Why could using a time-of-use tariff with a heat pump lower energy bills? Let’s walk through the steps of how this works.

A time-of-use tariff offers cheaper electricity a lot of the time. Whenever demand is lowest (especially at night time) or renewable energy is producing highly, these tariffs offer a very low price. The flip side is that, during periods of high demand (typically during the 4pm - 7pm evening peak) or low renewable output, electricity can get very expensive. But there are usually a lot more hours of cheap than expensive electricity in a day.

Some time-of-use tariffs – such as Octopus Cosy – use pre-determined periods each day, with an expensive period in the evening peak, a moderate period in the morning or daytime, and a cheap period outside those times. Generally these cheaper periods will be pre-advertised, and stay the same for the duration of your contract. Some time-of-use tariffs – such as Octopus Agile – pass the costs of supplying energy directly through to consumers. There are no fixed or pre-advertised cheap times – whatever it costs, consumers pay, be it very cheap or very pricey. Some of these pass-through tariffs include upper limits on the cost of energy, and many also impose extra charges during the 4:00pm-7:00pm peak.

A heat pump normally does not follow the same peaks and troughs as other electricity use, such as cooking and industrial demand. If it is not used flexibly, a heat pump typically uses roughly the same amount of electricity every hour of the day, delivering steady, ambient heat.

Because off-peak periods for electricity prices tend to last longer than peak periods each day, a heat pump normally uses most of its electricity in the cheaper periods. Overall, that means you can usually save money by being on a time-of-use tariff, even if you don’t flex.

Before seeing this finding, we were unsure about how much households could really save from time-of-use tariffs. Are the savings in off-peak periods really enough to justify the risk of very high peak prices? Did these tariffs reflect the real cost of providing electricity, or were they being used mainly to attract new customers? These results suggest that the savings are real and significant, which is good news.

We also had some doubts about how long the savings from smart tariffs would last. The energy market is broadly on the way down from the huge price shock of 2022, which may offer short-lived savings. 

Cornwall’s analysis suggests this is not so. Electricity really is cheaper to supply at off-peak times. There is a caveat: Cornwall’s analysis only covers the next 10 years. It is still possible the savings from time-of-use tariffs may reduce by the time we get to a 2050 net-zero electricity system, but they are unlikely to disappear soon.

We also have a question over whether these price differentials will get arbitraged away by batteries – if batteries become widespread, either in the home or at grid scale, wouldn’t they buy up the very cheap electricity, in the process flatteningTesting tools to help households flex their energy tariffs out price differences? Batteries are currently rare in British homes, although MCS data suggests installations are beginning to accelerate, with just under 3,000 registered installations in January 2025. However, it is uncertain whether most homes will have batteries or not in future, and it would take a long time for it to happen if they did.

There are some other caveats to this analysis. 

We have compared smart tariffs to the Ofgem price cap – which sets the maximum amount that standard tariffs can charge – and it should be possible to get non-smart tariffs below price cap levels. 

There are risks around exposing households, particularly low-income and vulnerable households, to greatly fluctuating electricity prices, and this will need care. 

There are also questions over whether and how the benefits of smart tariffs can be made available to everyone, such as those who use pre-payment meters.

Laying the groundwork for mass take-up of smart tariffs will take some consideration to ensure low-income households benefit. As it stands, whether households currently have a heat pump fitted in their own, privately-rented or social-rented home, there is a pretty clear and important finding: you should be able to save money with a heat pump and a smart tariff, even if you don’t use the heat pump flexibly. 

This has important implications for heat pump running costs – they could be much lower than we previously thought. It also suggests we should be actively encouraging heat pump users to use smart tariffs and ensuring those who are considering a heat pump know they might be able to benefit. We’ve just begun an exploratory project to test consumer sentiment around increasing tariff takeup. With energy bills remaining high and the need to cut carbon emissions greater than ever, time-of-use tariffs could make the case for heat pumps even stronger.