Do you know what type of energy tariff you have? If you don’t, there’s a fairly good chance that you’re on a standard rate tariff. But what does that mean for you? What’s “standard” about standard rate tariffs? Find out everything you need to know about standard rate energy plans, including the disadvantages, benefits, alternative options and how to check whether you’re signed up for one already.
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 energy supplier of the previous homeowner, then you’ll automatically be placed on a standard energy tariff.
Because standard rate tariffs are “variable”, the price per unit is dependent upon the base rate set by the Bank of England. If this rate increases, then your gas and electricity prices will also rise. 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.
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 fairly 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 a price hike. 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 length of your contract. Whether or not you’re actually likely to save money over the course of your plan is up for debate, but with a standard energy tariff, it’s definitely a possibility.
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: despite the fact that 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.
Generally speaking, you’re probably on a standard energy tariff if you have never switched energy supplier. It’s also possible that you’re on a standard tariff if you were on a fixed rate plan that subsequently expired. This is because you will simply have rolled onto your supplier’s standard variable rate plan. To check whether you’re on a standard tariff, you should check your bill and 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.
There are several different underlying causes that lead to energy prices rising. Here are some of the most common factors that lead to rises in price:
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. 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 limited supplies could impact the prices of gas and electricity. However, this is not likely to be a problem in the immediate future.
Technically, there is no “end” for standard tariffs because they aren’t actually contracts - it’s just 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.
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.
In many ways, fixed rate energy tariffs are the opposite of standard tariffs. Put simply, they guarantee that your energy costs will not be increased for a set period of time. Usually, it’s around one year or more. This protects you from unexpected price hikes, although it’s worth considering 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 a fixed rate energy tariff, you will need to pay an early exit fee if you want to switch energy plans.
Having said all that, the security offered by fixed energy plans is a great reason to choose this type of plan instead of a standard energy tariff. Plus, it’s easy to forget that the only situation in which you’re missing out on potential savings is if prices drop or are unchanged. This is relatively unlikely, so in the vast majority of cases, a fixed rate energy plan is likely to be a more cost-effective option than a standard variable tariff. Of course, you should always keep an eye out for better deals, particularly around the time that your fixed rate energy plan comes to an end.
There are a couple of scenarios in which a standard variable tariff could be the right choice for you. For example, if you’re sure that energy prices are going to remain stable for the next couple of years, a standard tariff may be a good option. By the same token, if you expect prices to rise a relatively small amount, then the additional flexibility afforded to you by a standard energy tariff could be worthwhile. However, it’s not always the best choice. If you prefer to plan ahead with your finances, or you’re not willing to risk significant fluctuations in your energy costs, then a fixed rate tariff may end up being the better choice.