Understand the different energy tariffs on offer

Energy tariffs explained

There are many types of energy tariffs, and if you don’t know where to start, the process of choosing between them can seem a little daunting. Read on for our comprehensive guide to the different types of electrical tariff, so you can decide which one works best for your household’s energy needs. 

Variable rate tariffs

Otherwise known as “default tariffs” or “standard variable rate tariffs”, variable rate tariffs are tariffs with rates that are subject to change. This means that the price-per-unit that you’ll need to pay for your energy is dependent upon rates set by the Bank of England. So, if the price of energy increases, so will your bills. On the other hand, if the price of energy falls, then you won’t need to pay as much for energy. 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. Plus, 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. 

Fixed rate tariffs

In some 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 (this is generally around 12 months), regardless of whether the price of energy changes 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 will not be able to take advantage. 

In some senses, fixed rate energy tariffs are a gamble, because if the price of energy drops, you’ll still be left paying a higher rate. In practical terms, however, fixed rate energy tariffs tend to be the cheapest type of tariff. 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 prices, 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 dual fuel 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 offer you a combined 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, and you’re unlikely to notice any changes in your household’s energy usage. 

Economy 7 tariffs

Economy 7 tariffs are differential rate tariffs, which means that you will pay different rates for different periods 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. 

Economy 10 tariffs

Economy 10 is very similar to Economy 7, however with Economy 10, you will receive 10 hours of lower rates. Three hours will be in the afternoon, and the remaining seven will be at night. In order to get the most out of this tariff, you will need to plan your energy usage around the two off-peak periods, and because your energy rates will be so much higher in peak hours, using a significant amount of energy at these times could force you to pay more than fixed rate tariffs. 

Prepayment energy tariffs

If you have 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 pay for a set amount of energy after you have used it. These types of energy tariffs allow you to budget for 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 big energy bill. 

However, there are some downsides to prepayment energy tariffs. Since you can only pay with key fobs and smartcards (unless your supplier offers an online option), you may find yourself in a situation where your energy gets turned 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 it’s important to remember that rates are becoming more 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. 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 is a wide range of suppliers who are now able to offer tariffs with high percentages of renewable energy. 

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. 

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 ideal option. 

What are the best types of energy tariffs for me? 

Overall, the best energy tariffs for your household depends on your pattern of energy usage, as well as what you value in an energy plan. If you’re committed to reducing your carbon footprint, then a green tariff may be the best option. On the other hand, if convenience and ease of use is your number one priority, then a dual fuel tariff could be the right energy tariff for you. Work out what is most important about the different types of electrical tariffs for you and select a tariff that has those properties. 

Bjorn GriffithDec 9th 2019