With the proliferation of different energy suppliers and plans in the market, picking the right one can get a bit confusing. First comes the matter of choosing a supplier, and once you’ve gotten past that process, you have to select a plan with a tariff that suits your budget. What’s more – the same plan could cost more or less, depending on the area in which you live!

While this all seems very confusing at first – don’t fret! We’re here to break down the different types of energy tariffs and explain the pros and cons of each.

Why do energy companies have different energy tariffs?

The rate at which suppliers offer energy boils down to three major factors:

  • How much business they generate in your area
  • What is the price they pay for energy in your area
  • The different charges that the supplier needs to pay in your area

So depending on where you are located, the price of the same plan can be extremely different. For example, Merseyside and the South of Wales have some of the highest energy prices on average, as compared to the North of Scotland and the East Midlands, which have the lowest.

While shifting locations in order to reduce your energy bills is not an option you would lightly consider, why not compare energy prices to see the different rates provided in your area? Let’s begin by understanding what the different types of tariffs are.

Types of Energy Tariffs

Standard energy tariff:

This is the default tariff provided by your supplier, also known as a standard variable tariff or an evergreen tariff. On this type of tariff, prices for energy supply are variable, which means that they can increase or decrease depending on the wholesale energy market price, meaning either cheaper or more expensive monthly energy bills for you. It is up to you to keep a track of the energy market and switch suppliers in case you expect a price increase. Contracts with this type of tariff usually have no fixed end date nor exit fee, making it easier to switch energy suppliers.

In summary:

  • You can benefit from lower energy prices when the wholesale rate of energy is low.
  • Contracts are more open ended, making it simpler to switch suppliers.
  • Usually, there are no exit fees even when ending a contract early.
    • You might end up paying more when the wholesale price of energy increases.
    • These tend to be more expensive than variable rate tariffs.

Fixed Energy Tariffs

A fixed energy tariff guarantees that you will pay a certain set unit rate for your energy supply, along with any applicable standing charges. Do note that the fixed unit rate does not mean that you will pay the same amount every month – while the rate remains the same, your total bill depends on the amount of energy you use each month. These types of contracts have a specific end date and will most likely charge you a fee for switching suppliers before the term of the contract expires.

In summary:

  • Your kWh (kilowatt per hour) rate does not change, even with market price fluctuations.
  • Some suppliers provide cheaper rates for fixed rate tariffs.
    • Your bill may not necessarily reduce, since it still depends on your energy usage every month.
    • Contract only lasts until a defined end date, after which your supplier will change you to a standard variable tariff unless otherwise notified.
    • Exit fees are almost always likely with this type of tariff.

Dual Energy Tariffs

Looking for convenience over value? Opting for this type of tariff means choosing to receive both your gas and electricity bill from the same supplier. Most suppliers will offer you a better energy deal if you choose to deal with them for all your household energy needs, and you can benefit from the convenience of dealing with a single supplier. However, you may still be charged an exit fee for switching suppliers – this depends on your contract.

In summary:

  • It is more convenient to deal with a single energy supplier.
  • You are likely to receive a concession, discounted rate, or cashback for switching to a single supplier.
  • Easy to switch to a new supplier since only one contract requires cancellation.
  • May not be the cheapest rate in the market.

Online Energy Tariffs

Online tariffs can be incredibly cheap – the only catch is that you will have to manage your account fully online, which means paying your bills, sending your meter readings, and dealing with your supplier via digital correspondence. In return, however, most suppliers offer you a hefty discount on your household energy supply.

In summary:

  • Easy to manage your account, payments, and track your energy usage online.
  • Among the cheapest energy rates available in the market.
  • You have to be comfortable with managing your account online.

Green Energy Tariffs

The eco-friendly option, a green energy tariff means that your energy supplier guarantees to match your usage with energy generated from renewable energy sources. Contrary to what you might think, they are not significantly more expensive than any of the aforementioned types of tariff, so shopping around for a good deal might help you reduce your household energy expenses while staying environmentally responsible.

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In summary:

  • It is a socially and environmentally responsible option.
  • Some suppliers offer discounted rates for switching to this type of tariff.
  • You may be charged exit fees when you switch suppliers.

Prepayment energy tariff

This type of tariff allows you to “top up” your meter and pay for gas and electricity in advance, similar to a prepaid mobile plan. Most suppliers let you switch to a new prepayment tariff if you have up to £500 debt on your meter, though some suppliers offer lower debt limits. While this plan encourages safe spending it is also one of the highest tariff options.

In summary:

  • Easier to budget and manage your finances, since you already know how much you will spend on energy supply.
  • Among the most expensive tariffs in the market.
    • Limited options for prepayment customers.

Fixed VS. Variable Energy Tariffs

Having read about the different types of tariffs you might still be wondering – which is better, fixed or variable energy tariffs? The simple answer is that it depends on your ability to take on the risk of paying higher energy bills in certain months, and how actively you would like to monitor your energy usage and the industry.

Variable rate tariffs offer you the benefit of paying less when the wholesale price of energy is down. While this is a tangible benefit when the market is favourable, circumstances can change, and you might find yourself paying more for energy when the market price goes up. At this time, if you are willing, you can switch suppliers, since these tariffs usually go hand in hand with open ended contracts. However, it is still a hassle to keep a track of this and switch suppliers every few months.

On the other hand, fixed tariffs guarantee you a certain price per unit, but at a higher cost, so it finally comes down to whether you would rather pay a premium for increased stability.

When choosing, it is best to consider your current financial situation and how often you may have time to monitor the best energy deals in the market and decide based on that.

Switch & Compare Energy Companies

Finding a new energy supplier can be a struggle. That’s why we’re here to do the groundwork for you! Energy Switching can help you compare the best suppliers and tariffs and find the best deals in your area.

Our comparison engine is completely Ofgem accredited, which means that you are getting service that you know you can trust, and results that are completely impartial, to help you make the best decision regarding which supplier to switch to.

Published date: 03/04/2020