The ultimate guide to standard rate tariffs

Last updated: 15 October 2020

In this guide you’ll get answers to the following questions:

  • What is a standard variable tariff?

  • What are the benefits of a standard rate energy plan?

  • What are the disadvantages of a standard tariff?

  • How can I find out if I’m already on a standard variable tariff?

  • What makes energy prices rise?

  • How can I switch from a standard variable tariff?

What is a standard variable tariff?

Standard rate tariffs (which are also referred to as standard variable tariffs) are basic, variable rate energy plans. This type of energy plan is essentially the supplier’s default tariff, so if a new customer doesn’t request a specific plan, or you move to a new house and inherit the previous homeowner’s energy supplier, then you’ll automatically be placed on a standard energy tariff. 

Because standard rate tariffs are “variable”, the price per unit is dependent upon various factors, subject to a maximum level set by Ofgem. These factors include the wholesale price of energy, and if this rate increases, so too will your gas and electricity prices. However, if the rate falls, then you’ll enjoy lower bills. As a result, people who use standard variable tariffs are likely to experience significant fluctuations when it comes to their gas and electricity prices. It’s also worth noting that in most cases, a standard variable tariff is likely to be the most expensive type of energy plan offered by your supplier.

What are the benefits of a standard rate energy plan? 

Ultimately, there are very few benefits associated with standard rate energy plans. One of the few positive points is the fact that you aren’t tied to a contract, which means that there are no cancellation charges. As a result, it’s relatively simple to move to a cheaper deal with a different energy supplier if you want. It’s also worth remembering that your power supplier is obligated to give you 30 days’ notice of any price hikes. This gives you a reasonable amount of time to find a new energy supplier if the new price is too high for your budget.  

Of course, a standard variable tariff may also enable you to take advantage of reductions in energy prices. This is in stark contrast to fixed-rate energy plans, which would not allow you to benefit from price cuts, as your price-per-unit is fixed for the duration of your contract. Whether you’ll save money over the course of your plan is up for debate, but with a standard energy tariff, it’s a possibility.

What are the disadvantages of a standard energy tariff?

There are numerous disadvantages associated with standard variable tariffs. As mentioned previously, standard rate tariffs are usually the most expensive type of energy plan that you can be on, as they’re your energy supplier’s default tariff. Of course, the price fluctuations associated with standard tariffs are also a significant problem. Given that the price-per-unit isn’t fixed, you could end up paying much more than you’re comfortable with if energy prices rise. And since prices vary considerably, it can be difficult to assign a monthly budget. Bottom line: even though there’s the potential to make savings on the cost of your energy, people with standard energy tariffs almost always end up paying the most for their gas and electricity.

How can I find out if I’m already on a standard variable tariff?

If you’ve never switched energy supplier then it’s likely you’re on your supplier’s standard energy tariff. It’s also possible you’ve rolled on to a standard tariff if you were previously on a fixed-rate plan that has expired. That’s because if you do nothing, your supplier will simply switch you to its standard default tariff.

To verify whether you’re on a standard tariff, you should check your bill to see what the name of your plan is. You may also be able to check whether you’re on a standard energy plan by logging into your online account (if you have one) or getting in touch with your energy supplier’s customer service team.  

What makes energy prices rise?

There are several different underlying causes that lead to energy prices rising. Here are some of the most common reasons: 

  • Global conflicts

Conflict in countries that control gas pipelines, or conflicts in countries that control the supply of oil, can have an impact on wholesale energy prices, although the impact is only likely to last for a short period of time. 

  • Energy price cap

Ofgem introduced the energy price cap in January 2019. Somewhat ironically, this led to numerous power suppliers setting their rates to the maximum allowed by the cap, causing energy prices to rise for consumers. 

  • Limited supply

As fossil fuels are in limited supply, it’s possible that restricted supplies could impact the prices of gas and electricity. However, this is not likely to be a problem in the immediate future.  

What happens at the end of a standard variable tariff?

Technically, there is no “end” for standard tariffs because they aren’t fixed-term contracts – they’re simply the default offer from your power supplier. It lasts indefinitely, and you’ll remain on a standard energy tariff until you decide to switch your plan. 

How can I switch from a standard energy tariff?

After signing up for a standard variable tariff, you may experience significant price hikes, motivating you to switch to a new type of plan. Fortunately, it’s relatively easy to switch from a standard tariff, as you won’t need to pay a cancellation fee. You can compare different plans on energy comparison websites, and then all you need to do is select the plan you would like to switch to, and your new energy supplier will take care of the rest. All you’ll need to provide is your postcode, your bank information, and a recent energy bill. 

Is a fixed-rate energy plan a better option? 

Almost certainly. They’re practically the opposite of standard tariffs, guaranteeing that the cost for each unit of energy you consume won’t rise (or fall) during the period the plan runs for. This period is typically 12-18 months, but some fixed-rate tariffs last for as long as three years. The plan protects you from unexpected price hikes, although it’s worth bearing in mind that as you’ll be locked-in to a long-term deal, you could end up paying over the odds for your energy should energy prices fall or remain stable. You should also keep in mind that with most (but not all) fixed rate energy tariffs, you will need to pay an early exit fee if you want to switch energy plans before your plan is close to ending.

That said, fixed-price deals are almost always significantly cheaper than standard variable rate tariffs, so even if energy prices fall, it’s rare for a standard variable rate to work out significantly cheaper than a fixed deal. Plus, you gain the added security of knowing how much your energy plan will cost for a set period, giving you peace of mind and the ability to better budget your energy costs.

That said, you should always keep an eye out for better deals, particularly around the time that your fixed rate energy plan comes to an end.

Is a standard energy tariff right for me? 

There are several scenarios where a standard variable tariff could be the right choice for you. First, you may pay for your energy upfront using a prepayment meter, in which case your choices are narrowed considerably – only a handful of fixed-rate tariffs are available for these prepayment plans, with most being of the variable type.

Second, if you’re sure that energy prices look likely to remain relatively stable for the next couple of years, a standard tariff may currently be the best option. Even if prices do rise, the flexibility of not being tied into a contract gives you the opportunity of switching to a fixed-rate deal or finding a cheaper supplier at relatively short notice – the switching process should take no longer than three weeks to complete.

On the other hand, if you prefer to plan financially, or you’re not willing to gamble with the cost of energy, then a fixed-rate tariff will almost always work out being a better choice. Find the right deal, and you may even avoid being tied to expensive exit penalties, giving you the best of all worlds: security, plus the flexibility to switch if a better deal comes along.

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Updated on Tue 28 Jan 2020 08.11 GMT

Published on Wed 23 Oct 2019 03.30 GMT