A method of pricing energy based on either the actual market value or the utility's cost for energy at the time when it is used. Utilities typically pay varying amounts for energy depending on the time of use and the quantity needed at that time. Off-peak energy is typically less expensive than on-peak energy, and expensive reserve energy purchased to meet short-term requirements can add substantially to the overall cost of energy. When real-time pricing is applied, a customer who uses most of their energy at night when demand is low can be charged an appropriate rate compared with a customer whose energy needs are concentrated within peak periods of the day when the utility's energy costs may be signficantly higher.

Real-time pricing is expected to become the standard for commercial and industrial customers ing the US once the energy industry is fully deregulated. The extensive use of spot markets for the sale of energy, and the falling costs of needed hardware could even make this cost-effective for new residential customers in the near future.

Time-of-use rates are an interim solution which is already used with some commercial and industrial customers. This type of rate structure measures consumption at specific times, but it keeps cumulative totals for certain times of the day over the length of the billing period rather than individual totals for each measured period of every day, so it is less accurate and slightly less fair than real-time pricing.

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