Energy tariffs explained

No matter how much energy you use around your home or office, your provider charges you through an energy tariff. This determines how much money you need to pay for gas and electricity. Although the options for switching are low at the moment, it’s worth knowing what type of tariff you’re on.

hand turning down thermostat

 

What types of energy tariff are there?

There are 2 main categories of energy tariff – fixed rate and variable rate. All other tariffs are a variation on these 2 main types.

 

Fixed rate tariffs

Fixed rate tariffs mean that the price you pay for each unit of energy is fixed for a period of time. The term ‘fixed’ refers to the price per kilowatt of gas and electricity used, not to your bill amount. You still pay for every unit of energy, so the more you use the more you pay.

On a fixed tariff, even if a supplier raises its prices, the price you pay won’t change during the fix. On the flip side, those fixed rates mean you don’t feel the benefit if energy prices are cut. 

The exit fees charged by some suppliers can be relatively high too. So, if you want to leave the deal, you could end up out of pocket.

 

Variable rate tariffs

On a variable rate tariff your price per unit of energy can go up or down at any time. The price you pay tends to track the wholesale price of energy. You can normally leave a variable rate tariff without paying a fee.

 

Standard variable rate tariffs

You should be on a default or standard variable rate (SVR) tariff if you:

  • Have never changed your energy supplier
  • Have previously switched to a fixed rate tariff that has now ended
  • Your energy supplier has gone bust and you’re now with a new supplier

SVRs are usually the most expensive tariffs offered by energy companies and are the main focus of the energy price cap imposed by Ofgem.

But with many energy suppliers going bust due to the recent soaring prices of wholesale energy, an SVR could be the best and only option. Also, there are few fixed deals available now that offer much of a saving over an SVR tariff.

This might change when the price of wholesale energy stabilises and the energy market returns. 

 

Dual fuel tariffs

Dual fuel tariffs provide both gas and electricity from the same supplier. This is helpful when switching, as everything is in one place.

Also, energy providers might offer a discount if you get both gas and electricity from them, which could result in some savings. However, it’s important to check if the savings from this discount outweigh the cost of 2 separate energy deals.

 

Prepayment energy tariffs

A prepayment meter allows you to top up your gas or electricity before you use it via a corresponding prepay token, smartcard or key. 

You may find yourself on this type of tariff if you inherited a prepayment meter at a house you’ve recently moved into. Or if your supplier has requested you move to this type of tariff after a debt on your account.

A prepayment tariff is one of the most expensive types of energy deal and your supplier may not allow you to leave this tariff if you're in debt. For this reason, prepayment tariffs are capped by Ofgem.

The price cap limits the unit rate charge, which is calculated and updated twice a year - or 4 times a year after October 2022- with the energy price cap.

 

Internet-only or online tariffs

As the name suggests, online tariffs are managed via the internet. Your meter readings for gas and electricity are recorded online and you pay your bills via an online account. Some companies may even have an app where you can pay your bills on the go.

Should you need help with your account, you can still contact your supplier via the phone.

Online tariffs can be either fixed or variable. Dual fuel options are also available.

 

Time of use tariffs - Economy 7 and Economy 10

Time of use tariffs alter the price of your gas and electricity depending on the time you use them. These tariffs include ‘Economy 7’ and ‘Economy 10’ and offer cheaper energy during certain hours when there's lower demand.

For example, Economy 7 tariffs offer a low-cost rate for electricity for 7 hours each night. This rate is cheaper than the rate charged during the other 17 hours of the day.

You need a special meter for a time of use tariff, capable of charging and measuring 2 rates depending on when you use your energy.

This type of tariff is handy if you know when you use your gas and electricity and if it fits in with the times when it’s cheaper.

 

Capped energy tariffs

Like fixed rate tariffs, capped tariffs guarantee that the price per unit of electricity or gas won’t go up.

The main difference is that with a capped tariff, the price could go down and benefit you.

Because the prices cannot rise, capped tariffs can be expensive compared to other types of tariffs. However, they’re good for peace of mind as you don’t receive any unexpected price increases.

 

Green tariffs

Green energy tariffs allow you to do your bit for the environment by buying your energy from companies who produce or purchase it from renewable sources.

Electricity tariffs are normally 100% green, the energy produced coming from renewable sources such as solar, wind or waves.

Green gas is more difficult due to there being little renewable gas produced in the UK.

Some renewable tariffs pay a proportion of your bill into funds that support (via investment) either renewable energy projects (such as solar power, hydro-electric generation or wind farms), or reforestation projects.

 

No standing charge tariffs

Typically, a utility bill contains 2 elements - a standing charge for having the service available to you, and a per unit charge for the energy you use.

With a no standing charge tariff, you only pay for the energy you use.

This could be beneficial if your energy usage varies a lot, particularly if there are periods each month where you don’t use any energy at all.

Before you go for a no standing charge tariff, consider carefully how you use your energy. You should also check the kWh rates charged on this tariff carefully as these are often higher per unit of energy used.

 

Business energy tariffs

If you’re a business owner, you need to get an energy tariff that’s been designed for commercial properties.

Even if you work from home, if at least 50% of the energy you use is for business purposes, you might benefit from a business energy deal. These differ from domestic deals, the main difference being there's no dual fuel option, so you need separate contracts for gas and electricity.

 

How to switch energy supplier

At the moment, there aren’t many energy deals available due to many suppliers going bust. You can use our switch ready tool to get energy deals as soon as they become available - it takes less than 2 minutes.

  • Confirm your energy details
  • We'll send personalised deals straight to your inbox
  • When you're happy with your deal, we'll complete the switch for you
  • Get personalised electricity deals straight to your inbox

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