What to consider when choosing an energy tariff
Even when energy prices aren't at record levels, it's important to ensure you’re getting the best deal from your supplier, and that you’re on the best tariff for your particular needs. That's why we've pulled together this short guide on all the things to consider when choosing an energy tariff.
With energy prices at record levels, it’s important to ensure you’re getting the best deal from your supplier, and that you’re on the best tariff for your particular needs. We’ll help you figure out how to do just that in this article.
What is an energy tariff?
An energy tariff is simply the rate at which your energy supplier charges you for gas and electricity. Your usage is measured in Kilowatt Hours (kWh), and you will also pay a standing charge for your utilities.
Types of energy tariff
There are two main types of energy tariff. The first is a fixed tariff, and the second is a variable tariff. With energy being split into gas and electricity, you can choose whether you want to have one supplier for both electricity and gas (known as dual fuel) or whether you go with a different supplier for each utility (single fuel). This isn’t a problem if your property is electricity only.
A fixed tariff is where your cost per unit of electricity or gas is locked in for a period of time (typically a 12-24 month contract). Your price is guaranteed, so regardless of what happens with energy prices, you will continue to pay for your energy at the rate agreed when your contract came into effect.
Being on a variable tariff means your unit price will change in line with the market price of gas or electricity. So, you could benefit greatly from a drop in prices, but it also means that when energy prices rise, so will your bills.
Some suppliers also offer Economy 7 and Economy 10 tariffs for your electricity supply. These tariffs offer a “night rate” when there’s less demand on the National Grid, resulting in a cheaper rate for electricity use at night - great for you night owls. The difference between Economy 7 and Economy 10 is that the former offers off-peak rates for 7 hours and the latter for 10 hours. While this can save you money, if most of your electricity consumption is during peak hours, the savings may not be as much as you think.
What you should consider when selecting a tariff
When it comes to picking the right type of energy tariff, there are a number of factors you should take into account, all of which relate to your lifestyle, routine and needs. Let’s look at those below.
Increase in inflation and the cost of living
The huge spike in energy prices over the last 12 months is a part of the wider cost of living crisis we are experiencing. The war in Ukraine has severely impacted gas supplies, and as a result household energy bills increased by 54% in April 2022. This has also directly affected fuel prices, which have also seen an 80% surge. To add to this, the after effects of the pandemic and supply chain constraints have meant that inflation in the UK has hit record highs, with the level currently around 10.1%.
In situations like this, opting for a fixed tariff means that even though your overall bills will not be cheaper due to higher per-unit costs, at least you can fix the price you pay per unit so you’re not in for any nasty surprises if energy prices continue to spike.
Moving house
If you’re coming to the end of your tenancy or planning to sell your home in the near future, a fixed tariff may not be your best option, as they typically have a minimum contract term of twelve months. So, it may be more beneficial to go for a variable tariff instead. You can still terminate your fixed tariff contract early, however you need to be aware that there could be early termination fees, also known as exit charges.
Changes to your living arrangements
If you expect to have new additions to your family, or even have someone staying with you for an extended period of time, your energy consumption will naturally increase. In this situation, a fixed tariff may be a good option to go for. This way, even though your bills will increase in line with higher energy consumption, you will know exactly how much you will be paying per unit of gas or electricity - again without having to worry about a spike in energy prices affecting your bills or your budget.
Summary
The world of energy supply and tariffs can be overwhelming, with seemingly endless options, contracts, and energy suppliers in the market. Choosing the right supplier can be a difficult decision, let alone trying to figure out which tariff to go for. But, as we’ve seen, the two main types to consider are a variable tariff and a fixed tariff.
It’s important to take into account your lifestyle and the way you use your heating and appliances, along with looking at economic conditions to assess whether prices are going to continue surging at the rate they are right now. Sometimes the payoff of lower prices isn’t worth the hassle of constantly having to monitor energy prices when on a variable tariff.
If you’re expecting to move home in the not-too-distant future, signing up for a 12-24 month fixed-term contract right now may not be the best option, with exit fees to think about. But, if you plan to stay in your new home for a year or more, it could be the best choice considering market conditions.