In the energy market, there are many different ways to pay for home electricity and gas supply. The different ways of paying for energy are known as ‘tariffs’.

Tariffs come in lots of different flavours; you have ones in which rates rise and fall with energy prices, others that stay fixed. Some tariffs are ‘green’ while others are specific to a particular type of energy meter or customer situation.

In short, the situation is confusing, but here’s our ultimate guide to home energy tariffs which will help you decide which one suits you best.

What is an energy tariff?

An energy tariff defines how an energy supplier will charge for electricity and gas supplied to a home.

An energy tariff will typically define:

  • The type of energy supplied: either electricity, gas or both
  • A daily standing charge for electricity and/or gas
  • A unit rate per kWh for electricity and/or gas
  • An end date where the tariff is time-limited
  • The payment method
  • Any exits fees that apply for early termination

Your energy bill will apply your tariff charges to the amount of electricity and gas you’ve used to calculate how much you owe your supplier.

What are the different energy tariffs available?

Energy suppliers confusingly name their tariffs slightly different things. Here’s our complete list of energy tariffs; click on the list below to find out more about each.

Complete list of home energy tariffs:

Default energy tariff

Also known as Deemed contract, Out-of-contract.

A default tariff is when your home is supplied with electricity and gas, but you haven’t agreed to any other tariff with your supplier.

If you’ve come to the end of a fixed tariff or have just moved into a home, you’ll likely be paying a default energy tariff.

The default energy tariff of most suppliers is the standard variable tariff, where prices go up and down based on the wholesale energy market. Ofgem, the energy regulator, limits how much suppliers can charge in their default tariff using their price cap.

There are no exit or cancellation fees associated with the default energy tariff.

Standard variable tariff

Also known as: Standard energy tariff, Variable energy tariff, or Tracker tariff.

Under a standard variable tariff, the price you pay per unit kWh will change monthly depending on the energy market rate.

The wholesale cost of energy makes up about half of an energy bill, so when the wholesale price of energy rises, bills will increase dramatically in a standard variable tariff.

Most suppliers use the standard variable tariff as their out-of-contract default tariff. The standard-variable tariff is protected by Ofgem’s price cap mechanism that sets a maximum charge per kWh of electricity or gas.

There are usually no exit or cancellation fees associated with the standard variable tariff, so you are free to switch tariffs or suppliers at any time.

Temporary energy tariff

Also known as: Rollover tariff.

If you’re coming to the end of a fixed tariff with your supplier, they may automatically move you onto a temporary energy tariff.

A temporary energy tariff is different from the standard variable tariff because it will lock you into a fixed rate for a period of a year.

The advantage of a temporary energy tariff is protection from increases in energy price, but these tariffs are often needlessly expensive.

Temporary tariffs will not carry an exit fee, so you are free to compare energy suppliers at any time.

Fixed rate energy tariff

Also known as: Single-rate tariff

A fixed rate tariff provides the greatest security as the amount you pay in bills will be unaffected by rises or falls in the wholesale energy markets. In a fixed rate tariff, you agree for a period of time, usually 12 or 18 months, that you’ll pay:

  • A daily standing charge defined at the start of the contract
  • An agreed price per unit kWh of electricity supplied
  • An agreed price per unit kWh of gas supplied

Fixed rate contracts usually come with an exit fee if you choose to leave your contract before the end date.

The size of your fixed rate bills still depends on how much energy you use. Bills will increase in the winter months when most homes use more gas.

You’ll be automatically rolled over to a standard variable or temporary energy tariff at the end of a fixed rate energy contract. In most cases, you can save hundreds by avoiding this scenario and comparing energy prices before the end of the contract to switch to another fixed-rate agreement.

Capped energy tariff

Capped tariffs provide the price security of the fixed rate tariff but allow you to benefit from falling wholesale energy prices. The capped energy tariff defines a maximum unit rate for electricity and gas.

The actual price you pay will track the wholesale energy market until it reaches the maximum, at which point it will stay fixed. The capped tariff is only offered by a handful of the larger energy suppliers.

Unlimited energy tariff

An unlimited tariff works quite differently from the others on this list. In all other tariffs, you pay a price of energy per kWh you consume, meaning that the more electricity and gas you use, the higher your bills.

In an unlimited tariff, you will pay an agreed monthly energy charge regardless of how much energy you use. Unlimited energy tariffs are often criticised because they do not encourage households to use energy efficiently. To combat climate change, we must all do what we can to reduce emissions.

A crucial step is using less energy through steps like improving home insulation or installing a heat pump boiler. With an unlimited energy tariff, you won’t benefit from using less electricity.

Dual fuel tariff

Dual fuel tariffs are deals offered by energy suppliers where you are supplied both electricity and gas under a single contract. Dual fuel tariffs are convenient as you’ll only receive a single bill, and you only have to manage one energy contract.

Dual fuel tariffs often offer lower prices as suppliers can offer a ‘bulk buy’ discount for signing up for two different products simultaneously.

Multi rate energy tariff

Also known as: Economy 7, Economy 10, Economy, Differential tariff, Time-of-use tariff, White meter tariff, Electric vehicle tariff

Multi-rate tariffs are the future of home energy supply. In an old-fashioned fixed rate contract, you pay a set price per unit kWh of energy consumed. This simple contract doesn’t reflect the reality of energy prices.

Energy prices change throughout the day. Prices are at their highest during the day when there is enormous demand for electricity and gas but fall during the night when people sleep (and use less energy).

A multi rate tariff allows you to benefit from lower overnight energy prices. In a dual fuel multi rate tariff, you’ll agree with your supplier:

  • A day rate per kWh for electricity
  • A day rate per kWh for gas
  • An off-peak rate per kWh for electricity
  • An off-peak rate per kWh for gas
  • A daily standing charge

The best way to maximise the benefit of a multi-rate tariff is by setting timing appliances to work at night, in particular:

  • Washing machines and dishwashers
  • Electric car charging
  • Storage heaters
  • Slow cookers

It’s worth a quick note on the different names of the multi-rate tariffs. In an Economy 7 tariff, you have seven ‘off-peak’ hours during the day, while an Economy 10 gives you ten hours. White meter tariffs are the Scottish equivalent of the Economy 7 tariff.

Electric vehicle tariffs are just another name for the multi-rate tariff but are simply marketed toward owners of electric or plug-in hybrid vehicles that can benefit from charging with electricity during the off-peak rate hours.

The timeframes for off-peak vary from supplier to supplier. Knowing these hours is important to benefit from the cheaper energy rates.

Green energy tariff

A green energy tariff provides a carbon-neutral supply of electricity and gas, meaning that the energy you use doesn’t result in any emissions of greenhouse gases into the atmosphere.

The way that energy suppliers achieve a carbon-neutral supply varies from tariff to tariff; here are the most common methods:

1. Renewable electricity
In a renewable electricity tariff, your supplier will commit to not using any fossil fuels to generate your electricity. Instead, you’ll receive electricity from the following renewable sources:

To find out more, check out our complete guide to green energy.

2. Renewable biogas
In some regions of Britain, your supplier can use renewable biogas to supply your home instead of natural gas.

Biogas is produced in anaerobic digestors that convert plant matter and animal waste into natural gas.

3. Carbon-offset
The more common green gas tariff comes from offsetting the carbon emissions associated with gas supply to your property.

A supplier will invest in projects like planting forests that remove carbon dioxide from the atmosphere. Green investments are usually achieved by purchasing carbon credits.

Prepayment energy tariff

Also known as: Pay as you go tariff

A prepayment tariff uses a different payment method than all the other energy tariffs listed in this guide, and the tariff only applies to homes installed with a prepayment meter.

In most energy tariffs, you’ll receive a bill from your supplier each month based on the energy you’ve used, which you’ll pay by direct debit.

In a prepayment tariff, you pay for energy before you use it. Your meter needs to be topped up with prepaid credit to receive electricity or gas. Credit can be applied to the meter using a smartcard, token, key or via an app.

If your home has a prepayment meter, it’s necessary to sign up for a prepayment tariff that most energy suppliers offer. Prepayment tariffs come in a few shapes and sizes, including fixed rate and variable contracts.

Feed-in tariff

A feed-in tariff is designed for homes that generate their own electricity using solar panels or other renewables. A feed-in tariff allows you to purchase and sell electricity to and from the national grid.

In a feed-in tariff, you’ll receive money for any excess electricity you provide to the grid at a price that depends on when you first applied to the scheme. Homes that generate renewable energy will use much less electricity from the mains.

Still, the price paid for this electricity will work like the fixed-rate or variable tariffs above.

The feed-in tariff scheme was closed for new applicants in 2019 and replaced with the smart export guarantee.

Find out more about the feed-in tariff in our complete guide to the feed-in tariff scheme.

Smart export guarantee tariff

A smart export guarantee tariff works the same way as the feed-in tariff with a new name. The smart export guarantee tariff launched on 1 January 2020 and is open to homes with solar panels, hydroelectricity, wind turbines or anaerobic digestion systems.

The main difference between the feed-in tariff and the smart export guarantee is that the scheme is much less generous in the amounts you’ll earn per kWh of energy supplied to the grid.

Here’s our complete guide to the smart export guarantee.

Paperless energy tariff

A paperless energy tariff means that your energy supplier will only provide bills via email or access to an online portal.

To reduce needless paper and postage costs, energy suppliers will often charge you for requesting paper copies of bills.

No standing charge energy tariff

Most energy tariffs offered by suppliers have a daily standing charge that is payable regardless of whether you use electricity or gas. The standing charge reflects the cost of maintaining your property’s connection to the electricity or gas distribution networks.

Standing charges on fixed rate and variable tariffs range from 10 to 80 pence per day for gas and 5 to 60 pence per day for electricity.

In a ‘no standing charge’ energy tariff, you’ll only have a unit rate to pay for every unit kWh of electricity and gas consumed.

Typically no standing charge tariffs will offset the lack of standing charge with high unit rates. Homes that only use a minimal amount of energy are the ones that can benefit most from this tariff.

Here’s our complete guide to energy standing charges.

How does the price cap affect energy tariffs?

In the deregulated energy market, energy suppliers choose the prices they offer customers for electricity and gas. The price cap is a backstop that protects consumers against very high electricity and gas prices.

The price cap applies to default energy tariffs setting a maximum price a supplier can charge. The consumer price cap is currently set as:

  • Electricity standing charge – £0.45 per day
  • Electricity unit rate – £0.28 per kWh
  • Gas standing charge – £0.27 per day
  • Gas unit rate – £0.07 per kWh

In the first half of 2022, the wholesale price of electricity exceeded the price cap, meaning that the best new deals available on the market are the standard variable tariffs suppliers offer.

It’s worth noting that companies do not benefit from the price cap in the business energy market. That’s why we offer a very separate business energy comparison service.

How do I know which energy tariff I am on?

Your business energy supplier will tell you which tariff you are currently paying on the bills they send you.

Suppose you’ve recently moved into a property and you’ve not yet signed up to an energy tariff. In that case, you’ll be paying for energy with default rates with the existing energy supplier to your property.

You can always call your supplier to ask which tariff you’re currently on.

What happens to my energy tariff if my energy supplier goes bust?

If your energy supplier goes bust, Ofgem will ensure a smooth transfer to an appointed supplier.

When your transfer is complete, you’ll be paying energy on your new supplier’s default tariff. In this scenario, you’ll be free to compare and switch to any other energy tariff.

Here’s our complete guide to which energy suppliers have gone bust, which shows the new supplier in each case.

Source link

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *