Understand the different energy tariffs on offer

Last updated: 28 January 2021

In this guide you’ll discover the differences between the following tariffs:

  • Variable rate tariffs

  • Fixed rate tariffs

  • Dual-fuel tariffs

  • Economy 7 and Economy 10 tariffs

  • Prepayment energy tariffs

  • Green tariffs

  • Capped energy tariffs

  • Online energy tariffs

What is an energy tariff?

An energy tariff is what your supplier uses to calculate how much your gas and electricity consumption costs. These usually comprise two components: a unit price charge, which covers the cost of the actual energy itself, and a standing charge, which covers other elements of your energy supply, such as administration and the supplier’s own costs for transporting energy to your home.

Most tariffs charge single unit prices for electricity and gas, meaning you pay the same regardless of when you use energy, but there are tariffs that charge different unit prices depending on the time of day or night your energy is consumed. More on those shortly.

Note, some plans combine elements of two or more of the tariffs listed below – for example, most green tariffs are also fixed-rate tariffs.

Variable rate tariffs

Variable rate tariffs, also known as ‘default tariffs’ and ‘standard variable rate tariffs’, charge unit rates that are subject to change. The price-per-unit that you’ll need to pay for your energy will vary according to various factors, the most important of which is the current wholesale price of energy. So, when the wholesale energy price increases, your bills will too. On the other hand, when it drops, your energy bills should reduce with it.

Variable rate tariffs are usually the default tariff provided by your energy supplier. This means that if you don’t request a specific plan, your fixed rate tariff comes to an end, or you move into a new home and inherit the old homeowner’s energy supplier, you’ll be rolled onto a variable rate tariff.

If you decide you want to leave your variable rate energy tariff, you won’t need to pay a cancellation fee. Variable rate tariffs give you the opportunity to take advantage of reductions in the price of energy. On the other hand, the price fluctuations associated with variable rate tariffs mean that you’ll probably end up paying more for your energy than you would on another energy tariff.

Variable rate tariffs are also subject to what is known as the energy price cap, which you can read more about here.

Fixed rate tariffs

In many ways, fixed rate tariffs are the opposite of variable rate tariffs. A fixed-rate energy plan provides a set rate for your energy for a set period. This rate will stay the same throughout the duration of your plan (typically 12 months, but some suppliers offer tariffs that are fixed for up to three years), regardless of how wholesale energy prices change in the interim. So, even if the average price of energy increases, you won’t face increased monthly bills. The reverse is also true, however, so if the price of energy falls, you won’t necessarily be able to take advantage. 

Fixed-rate tariffs usually – but not always – come with exit fees, which charge you a financial penalty if you switch to another tariff before your current fixed-rate deal is due to end (the exception is when you enter the final 49 days of your tariff, known as the ‘switching window’).

In one sense, fixed rate energy tariffs are also a gamble, because if the price of energy drops, you might be left paying a higher rate. In practical terms, however, fixed rate energy tariffs tend to be the cheapest type of tariff and allow you to predict your energy costs over a longer period. Even if you’re on a more expensive type of fixed rate tariff, you’ll save a substantial amount if your supplier were to put up its variable rate prices in the meantime, which makes fixed rate tariffs a great choice for cost-conscious buyers. 

Dual fuel tariffs

Dual fuel tariffs are simple, it just means that you’ll get your gas and electricity from the same supplier. This makes the whole process simple and potentially cheaper, as many energy suppliers will offer a discount if you sign up for this type of energy tariff. You’ll receive bills from just one supplier, and in some cases, your supplier may combine both fuels into a single bill.

Other than the fact that you’re getting both forms of energy from one supplier, dual fuel tariffs are no different to any other energy tariff – there are separate unit (and daily standing charge) prices for your gas and electricity, your household’s energy usage won’t be affected, but you’ll hopefully end up paying a bit less for your energy, and if you pay by direct debit you’ll likely pay a single monthly amount to cover both fuels.

Economy 7 tariffs

Economy 7 tariffs are differential rate tariffs, which means that you pay different rates for energy used at different times of the day. Essentially, you’ll pay higher rates throughout the day and a cheaper rate for a set seven-hour period through the night. Your Economy 7 meter tracks your energy usage in the day and night separately, and depending on your energy supplier, the difference between peak and off-peak energy rates could be as much as 50%. 

An Economy 7 meter could be a great option if you use a significant proportion of your energy at night. For Economy 7 to be a cost-effective option, you would need to use around 40% of your energy in the designated seven-hour night-time period. If you use most of your energy during the day, Economy 7 is unlikely to help you save money on your monthly energy bills – and could even increase them. 

Economy 10 tariffs

Economy 10 is virtually identical to Economy 7, with one crucial difference: you receive 10 hours of energy at lower rates. When these ten hours are applied will vary from supplier to supplier, but typically you’ll be offered a three-hour period during the afternoon or evening, plus a further seven hours overnight. Again, you’ll need to plan your energy usage carefully to take advantage of these reduced-rate periods, as the higher peak rates could see you paying more than a fixed single-rate tariff. 

Prepayment energy tariffs

If you’re on a prepayment energy tariff, you’ll need to pay for your energy before you use it. You can do this through a variety of methods, including key, text, or smartcard. This makes prepayment tariffs very different from other types of energy tariffs, where you’re paying for your energy after you’ve used it. Prepayment energy tariffs allow you to budget your household energy use more effectively, and since you’ll be paying in advance, you won’t need to worry about being hit with an unexpectedly large energy bill. 

There are some downsides to prepayment energy tariffs, however. While an increasing number of suppliers provide an online option for topping up your credit from the comfort of your own home, many still require you to top up your key fob, smartcard, or token in person from a shop or Post Office, which could lead to your energy being cut off if you haven’t had the opportunity to top up your meter at the shops. In addition, costs are usually higher with prepayment energy tariffs, although rates are becoming increasingly competitive. 

Green tariffs

For environmentally-conscious individuals, green energy tariffs may be a good choice. Essentially, green tariffs tend to promise 100% renewable electricity, and in some cases, around 10% renewable gas (with the rest carbon-offset). The sources of your energy will vary depending on your energy supplier, but there are a wide variety of renewable energy sources, including hydroelectric power stations and wind farms. Green tariffs are becoming much more popular in the UK, and there are an increasing number of suppliers who automatically offer green electricity with all their fixed-rate deals.

Capped energy tariffs

Capped energy tariffs are a type of tariff that makes a simple promise: your price won’t go up, but it may go down. Essentially, the upper limit to what you can expect to pay for energy is capped. These types of tariffs tend to be more expensive, so before you sign up, it’s always worth heading to a price comparison site to see what else is out there. Note, these tariffs have no connection to the Ofgem energy price cap, which applies to standard variable tariffs only.

Online energy tariffs

Online tariffs simply refer to types of energy tariffs that are managed online. Generally, you’ll receive a discount on your energy bills for doing so. It’s important to remember that your supplier will probably send communication about your online energy tariffs via email, rather than post, so if you’re not comfortable with handling paperless bills, then an online energy tariff may not be the best option.

What are the best types of energy tariffs for me? 

Which energy plan is right for you will depend on your household’s energy usage patterns, as well as what you might value in an energy plan. If you’re committed to reducing your carbon footprint, for example, then a green tariff may be the best option. On the other hand, if you tend to use most energy at night, then an Economy 7 or Economy 10 tariff will appeal. Work out what’s most important about the different types of gas and electric tariffs for you and select a tariff that has those properties. Finally, remember that many tariffs combine elements from more than one plan, such as tariffs that are fixed rate, dual fuel and green.

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Published on Thu 31 Oct 2019 10.11 GMT