Energy Tariffs Explained 

Fixed Rate Tariffs

Fixed-rate tariffs are popular with both businesses and households. Many choose fixed-rate energy to avoid market fluctuations and provide some security on their monthly energy bills.

These types of tariffs come with a fixed unit price. They are great if wholesale energy prices are lower than usual as consumers can fix those prices for 1-5 years.

Our experts have compiled all the information you need about fixed energy tariffs to help you decide if this is the correct type of tariff for you.

Fixed-rate energy tariffs allow consumers to lock in energy unit prices. Savvy consumers can request a fixed tariff when unit prices are low and enjoy the same rate for the length of their contract. Typically, fixed contracts last anywhere from 1 year to 5 years, although longer contracts are not typically available for domestic energy. Energy suppliers are hesitant to offer longer fixed contracts because of potential market fluctuations.

How Do Fixed Rate Tariffs Work?

Fixed-price energy tariffs can often seem too good to be true. Although a fixed-price energy tariff seems great, many are confused when their energy bills come back at different prices each month. This is because your price per kWh of gas and electricity is fixed, but the price may change based on how much energy you use in any given month.

For example, your energy bills may cost a little more during the winter months as you will be using more energy to heat your home and business.

Advantages of Fixed Price Energy Tariffs

Most energy suppliers will offer great fixed-price energy deals and here are some of the benefits:

• Market fluctuations will not cause you to drive your energy costs up. Once you have locked in a price per unit, you do not have to worry about energy prices. Business energy customers who need a lot of electricity can power their premises for less when they secure a fixed contract at the right time.
• Fixed tariffs are often the best value-for-money option on the market.
• If you use the same amount of energy each month your bill will be the same. This is ideal for home energy consumers who monitor their usage on a smart meter.
• Fixed tariffs offer consumers peace of mind.
• Fixed tariff bills are less complicated than bills on other tariffs. The unit rate never changes, which means that consumers do not have to wonder about new numbers on their bills.
• With our energy price comparison generator, finding a cost-effective fixed-rate tariff has never been easier. Simply put your details in and find a range of deals within 30 seconds.

Disadvantages of Fixed Energy Tariffs

Fixed-price energy is not for everyone. There are some situations where you could be paying more in energy costs:

• Fixed tariffs might offer short-term savings, but no one can predict how the energy market will fluctuate in the future. Business energy consumers might regret locking in a price per unit for a few years, especially if they use a lot of electricity.
• Most suppliers put cancellation fees in fixed contracts. Consumers must pay between £25 to £60 to cancel their contract, which makes it more difficult to find a cost-effective switch.
• Consumers need to decide before their fixed tariff contract ends. If you do not renew your contract or switch to a different deal, your supplier will automatically transfer you to a standard variable rate tariff. These tariffs are far more expensive than fixed or dual fuel tariffs.

Standard Variable Tariffs

A standard variable energy tariff offers some flexibility in comparison to a fixed energy tariff. Variable rates fluctuate from month to month in line with wholesale energy prices. Energy suppliers may take a few months to adjust the pricing to actual wholesale energy prices. Many households choose a variable tariff if they are not ready to commit to a fixed energy tariff because energy prices are higher than they usually are.

With energy suppliers offering many different terms, it is no wonder that the majority of people are confused about their energy bills.

At Power Compare, we inform customers about energy prices, tariffs and energy suppliers so they can choose the right deal for their household. Here’s everything you need to know about variable energy tariffs.

Standard variable tariffs (SVTs) are the default tariffs for both home energy and business energy. If you do not ask for a specific tariff, your energy supplier will put you on this type of tariff.

Variable energy tariffs are usually the most expensive contracts an energy supplier offers.

As the name suggests, the price per unit of energy varies. Consumers who are on this type of contract are not locked into a specific unit price, which means that they will experience fluctuations in their monthly bills. It is important to note that variable tariff unit prices are based on wholesale energy prices.

Advantages of Standard Variable Tariffs

Although variable energy tariffs are the default option, there are some significant advantages associated with this type of tariff.

• When energy prices go down, you will pay less for your energy
• There are no exit fees on a variable tariff. Both home energy and business energy customers can take advantage of this selling point. You can secure an SVT for periods with low unit rates and switch to a fixed tariff when prices start to increase.

Disadvantages of Standard Variable Tariffs

The disadvantages of standard variable tariffs cannot be ignored. Here are some important facts to think about before you make the switch.

• Variable rate energy tariffs are the most expensive energy tariffs. Energy suppliers usually count on customers being too bust to compare gas and electricity prices so they roll over onto variable rate tariffs.
• Each energy supplier can change unit rate costs at any time. This means your gas and electricity can jump up in price significantly from month to month. However, you are protected by the energy price cap.

Pre-Payment Tariffs

Consumers can pay for their energy before or after they use it. Most people choose a monthly direct debit at the end of the month. People who want to monitor their home energy usage can opt for pre-payment tariffs.

The difference between pre-payment tariffs, fixed tariffs, and variable tariffs can be confusing. We empower home energy consumers by clearing up the confusion around tariffs and suppliers. Our experts know everything there is to know about smart, and can even find you the best energy deal on the market.

Smart pre-payment tariffs have grown in popularity in recent years. Around 4.3 million UK homeowners have a smartphone. In simple terms, pre-payment offers homeowners an opportunity to pay for their energy before they use it.

These types of s are often referred to as pay-as-you-go s. They are a lot like pay-as-you-go phones, which people can top up whenever they need more credit. We recommend pre-paid s for people who want to monitor their usage.

Most suppliers will install them in their customers’ homes for free. Once installed, it is the customer’s responsibility to ensure that there is enough money (or ‘credit’). If there is no money on the meter, they cannot access gas or electricity.

Can I Save Money With A Pre-Payment Tariff?

Pre-payment tariffs are different from traditional tariffs. With traditional fixed and standard variable tariffs, customers pay at the end of the month via direct debits. Suppliers use their customers’ yearly usage to calculate their yearly spending, divide the number by twelve, and bill them at the end of the month.

This method depends on home energy customers sending regular readings. If they do not send readings, suppliers can only estimate their usage. Estimated usage can cause a lot of problems. More often than not, it is based on the historic energy consumption of buildings in the area.

If you miss a reading, you could be in credit. People are in credit when their suppliers charge them too much. If your supplier goes bust and stops trading, you might not be able to claim the credit back from your new supplier. Even if your current supplier continues trading, you will have to wait until the end of the year to get your money back.

Pre-payment tariffs eliminate this problem. However, they are often more expensive per unit. The good news is that Ofgem has implemented a cap on pre-payment bills.

What Pre-Payment Tariffs Are Available?

There are three types of pre-payment s available.

Depending on the energy supplier, you will have a key, smart card, or smart pre-payment meter. Older meters use tokens and coins. Modern s allow homeowners to add credit through online apps. Before digital credit became commonplace, homeowners had to add money to their smart cards or exchange money for tokens at local shops.

How Do I Get a Pre-Payment Tariff?

In 2020, the government set out plans to offer all eligible homeowners smart meters. This programme will help the government meet its goal of delivering net zero emissions by 2050. Switching to a pre-payment tariff can cut carbon emissions by up to 45 million tonnes.

Home energy suppliers in the UK are obligated to offer you a smart pre-payment. The big six suppliers in the UK will swap your standard for a smart for free. If you are currently with EDF Energy, npower, E.ON, British Gas, SSE Business Energy, or Scottish Power, you do not have to worry about installation costs.

Lots of suppliers are also happy to offer free smart installations in exchange for new customers. People who want to enter into a pre-payment tariff with a new supplier should take advantage of these deals. Right now, OVO Energy is one of the suppliers that provide new customers with free Smart Pre-Payments

All home energy consumers have a pre-payment gas or electricity meter. Consumers must take regular readings and send them to their suppliers. Doing so allows suppliers to monitor usage and estimate bills. If residents fail to send readings to their suppliers, they might have to outlay money on inflated estimated bills.

Smart pre-payments are the next generation of pre-payment meters. They automatically record energy usage and send it to suppliers. One of the main benefits of smart meters is that they come with an in-built display. Consumers can see their usage in real-time and act fast to reduce it.