What is the Tariff Comparison Rate and how can it help you save money?

Last updated: 16 October 2020

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

  • What is the Tariff Comparison Rate?

  • How is the Tariff Comparison Rate calculated?

  • How do I find out what my TCR is?

  • How do I compare gas and electricity prices using the TCR?

  • Is the TCR the best way to save money?

What is the Tariff Comparison Rate?

The Tariff Comparison Rate (TCR) is a general figure used to represent the cost of an energy tariff for the typical consumer. Ofgem introduced this figure in 2010 as a clear-cut way for consumers to compare gas and electricity prices. In 2017, Ofgem removed the requirement for suppliers and energy switching sites to provide a Tariff Comparison Rate.

The Ofgem TCR is calculated to include all discounts, standing charges, and unit rates. It also factors in the value of bundled products, whether these are priced at pounds per year or per kilowatt-hour. Essentially, it takes all the different costs that go into an energy tariff and distils them into one figure for comparison purposes. In this way, the TCR works like an annual percentage rate (APR) used to compare credit cards or other financial products

Why was the TCR introduced?

The Tariff Comparison Rate stemmed from Ofgem’s review of the energy market back in 2010. Its aim was to do away with confusing factors like inconsistent standing charges, tiered unit rates, and other issues making energy billing unnecessarily confusing for consumers. 

As a result, Ofgem launched the Retail Market Review (RMR) to simplify the energy market. Part of this review was the new requirement that all price comparison websites and energy suppliers provide a TCR for each plan. However, this requirement was rolled back in the spring of 2017. You’ll still find the TCR listed in many cases, but it’s no longer mandatory.

How is the Tariff Comparison Rate calculated?

A Tariff Comparison Rate is calculated using Ofsted’s standard of “medium energy use”. This equates to a household using 3,100 kWh of electricity and 12,000 kWh of gas each year, which is roughly the average rate for a small family. 

The actual calculation is performed as follows:

1. Multiply unit rate by consumption

The tariff’s unit gas rate and electricity rate are required for this part of the calculation. By way of example, the Energy Saving Trust calculates the average unit price as 16.36p for electricity, and 4.17p for gas (as per April 2020). The consumption figure based on Ofgem’s standard would be 3,100 for electricity and 12,000 for gas. 

2. Add annual standing charge

Standing charges are a flat rate charge that covers the costs of maintenance, distribution, and servicing for your gas or electricity account. There are separate standing charges for gas and electricity, even if you have a dual-fuel tariff. 

In April 2020, the average annual standing charges were £87.48 (electricity) and £93.39 (gas), but in reality these figures will vary widely depending on where you live, as connection costs are higher in rural areas where lines are trickier to install and maintain. Standing charges are usually displayed on your bill as a daily figure, in which case you’ll need to multiply this by 365, the number of days in the year, to calculate your annual standing charge.

3. Subtract any applicable discounts

There are many different discounts one could benefit from as part of a tariff. Paying by direct debit is one of the easiest ways to get a discount on your energy rates – those paying by credit or prepayment can expect higher fees. Paying for a dual-fuel connection is another way to garner a discount, as is choosing an online tariff.

4. Add VAT at the current rate

VAT is currently charged at 5% on domestic electricity and gas. This means multiplying the result of calculations 1-3 by 1.05 to add 5% on.

5. Divide figure by consumption

Finally, divide your electricity result by 3,100 and your gas by 12,000 to arrive at the TCR figure. 

CalculationElectricityGas
Unit rate x consumption 16.36 x 3,100 = £507.16 4.17 x 12,000 = £500.40
+ Annual standing charge 507.16 + 87.48 = 594.64 500.40 + 93.39 = 593.79
- DiscountsN/AN/A
+ VAT (5%) 594.64 x 1.05 = 624.37 593.79 x 1.05 = 623.48
TCR = 624.34/3,100 = 20.14 pence 623.48/12,000 = 5.19 pence

Example based on figures from Energy Saving Trust, April 2020

Naturally, your own usage may be far higher or lower than these figures, which is why a TCR is only meant to be the general approximation of what you can expect to pay for each tariff. Time-of-use meter customers, such as those on Economy 7 or Economy 10 plans, will not be provided with TCRs. 

How can I better understand my energy costs?

If you’re thinking about switching energy suppliers, you’ll often see fixed electricity prices listed in energy marketing materials. An energy company may claim, for example, that you’ll pay just £850 per year for your combined energy costs. However, there is no flat rate for gas and electricity. What these numbers represent is the per-unit charge for energy sources, and that £850 per year rate is calculated using median figures. As a result, your actual annual costs could be quite different than the advertised rates. 

If your energy usage falls outside of the median figures, how can you accurately compare rates? You might prefer to crank up the heat in the winter or splash out on larger domestic appliances, in which case you’ll pay more than the median. On the other hand, if you are quite frugal with your energy consumption, you’ll pay less. Look at the price per kWh rate to see what the supply itself is costing you, and you can more accurately compare gas and electricity prices. 

How do I compare gas and electricity prices using the TCR?

Whether you’re in the market to switch suppliers or simply want to know if you’re on the best rate, you can use the TCR as a comparison tool. Begin by finding out what your current TCR is, and then compare this to other tariffs using an energy comparison site. 

Comparing suppliers is easy. All you need to get started is your postcode and a copy of your latest energy bill. With this in hand, you can get a tailored list of tariffs that will be best suited to your needs. When you’re ready to switch, the new supplier will take all the guesswork out of the process

What’s important to keep in mind is that the TCR is a very general number and won’t necessarily apply to your own usage levels and region. It’s a good starting point to save money if you’re using it to shop around. If you happen to see a TCR for a different tariff that’s lower than your current figure, you can investigate further with a more in-depth price per kWh comparison using your postcode and annual energy consumption. Plug these numbers into the comparison site for an idea of what you’d actually pay for a plan in your specific region.

Is the TCR the best way to save money?

There are a few key benefits to figuring out your TCR and using this as a point of comparison. This number allows you to compare tariffs on a like-for-like basis, but what’s important to remember is that there’s more to an energy supplier than money alone. 

The Tariff Comparison Rate might include standing charges and median per-unit costs, but it doesn’t account for factors like customer service ratings, fuel mixes, and renewable energy. In short, the TCR doesn’t give you the full picture of what a supplier is able to offer in the same way that a full energy comparison site does. 

Another issue to consider is your own household’s usage. Without inputting your most recent meter readings or annual usage figures, there’s no way of knowing how close or far you are from the national median. It’s estimated that only 25% of households fall into the medium user category, so while it’s a useful starting point, you need to dig deeper to find out which tariff is right for you. This is where trusted comparison sites earn their corn, as by supplying figures based on your own household’s consumption, you’ll get an accurate picture as to the cost of switching.

One final thing: now it’s no longer mandatory, the TCR is slowly vanishing – even if you want to make use of it, you may find it tricky to track down.

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Updated on Tue 28 Jan 2020 08.15 GMT

Published on Mon 11 Nov 2019 04.53 GMT