What is a fixed price energy tariff?
By Aaron Howdle | Friday, September 3rd 2021
There are a lot of different energy tariffs out there with all sorts of fancy names, but in the end they all come down to two options, fixed-price tariffs and variable-rate tariffs. The question is, which is best for you?
In this guide we’ll focus on fixed-price energy tariffs, also known as fixed-rate tariffs. We’ll unpick the advantages and disadvantages of choosing fixed-price, and delve into what you can expect if you sign up for one.
What is a fixed-price energy deal?
First, a brief explanation of how your energy use is calculated. The energy you use is measured in kilowatt hours, usually shortened to kWH. This is the amount of energy used when you expend one kilowatt of power for one hour. One kWH is referred to as a “unit" of energy on most household energy bills.
A fixed-price energy tariff is one in which the amount you pay per unit of energy remains the same for the duration of the plan. Fixed rate plans tend to last one year, 18 months, two years or three years.
Your bill can go up and down during the time you are on a fixed tariff, depending on how much energy you are using, but the cost per unit will remain the same. So, for example, you will still pay more in winter when your heating is on than you would in summer, because you have used more energy.
Contract and billing?
Your contract will set out the relationship between you and your energy supplier, plus you will also see all the details of your deal. Details on your contract can include your yearly projected bill, the payment type you have chosen, the unit rates for gas, electricity or both, exit fees payable to leave the contract early, daily standing charges and in many cases the proportion of renewable energy included in your supply.
How your bill is calculated?
Your bill is calculated by adding up all the units you have used and then applying a price to the units. The price is in pence per kilowatt-hour (p/kWH). Since we are talking about fixed-price tariffs, this price per unit will remain the same for the duration of your contract. This is a good thing if you like to know what you will be paying in advance. However, energy prices rise and fall, so while you are protected if prices should rise, you will also lose out if they fall.
The per-unit price of gas will be different to the per-unit price of electricity and most suppliers will also add a daily standing charge, which can vary depending on where you live and how much infrastructure is present locally.
How to find and compare fixed-price energy deals
When using a price comparison site, make sure you click the ‘show all deals’ option so you are not only seeing tariffs that are being promoted through the site. A range of questions will come up before your comparison results are listed. Depending on how you answer these, a list of offers from various suppliers will appear. To view the fixed-price tariffs, click on the filter button at the top of the list and select ‘fixed-price tariff’. You should now only see the fixed-price options.
What happens when your fixed-price term expires?
When your fixed-price agreement ends, your energy supplier will probably switch you over to its standard variable-rate tariff. This means your price is no longer fixed and can go up or down, depending on current prices in the energy markets. It also means that any special discounted rates will end. At this point it is a good idea to shop around for a new deal or if you wish to keep the same supplier, contact it to see what it has to offer.
Which suppliers offer fixed price tariffs?
Most energy suppliers offer fixed-price tariffs. Here are a few of the companies to choose from.
Large energy suppliers
These previously formed part of what was referred to as The Big Six and include British Gas, EDF Energy, E.ON, Scottish Power and Ovo. British Gas is the biggest and uses the most renewable energy in this grouping.
Smaller energy suppliers
In addition to the Big Six, there are plenty of smaller energy companies. Octopus Energy, Shell Energy and Utility Warehouse are some of these smaller suppliers. There are also greener suppliers, like Bulb, Ecotricity, Green Energy UK and Good Energy, which guarantee that a certain percentage of the gas and electricity it buys comes from renewable sources.
Alternatives to fixed-price energy plans?
The alternative to a fixed-price tariff is a variable rate tariff. A variable rate tariff goes up and down in price according to the changes in the energy market, so if the supplier’s costs go down then so does your bill, but if they go up, your bill will go up too. Quite often the variable rate tariffs will look cheaper in a list of comparisons. But this changeability in price is a factor you should consider when making a choice.
The decision between a fixed-rate or variable-rate will come down to how much peace of mind you want. Choosing a fixed rate protects you from price rises, but a variable rate could be cheaper in the long run, but at the risk of prices going up.
The main downside of a fixed-price tariff is that you are stuck in your contract if you happen to see a better deal elsewhere. You can leave but you will probably have to pay an exit fee.
Frequently asked questions
Is a fixed-price tariff cheaper than a variable-rate tariff?
At first glance a variable rate can often appear to be cheaper than a fixed-price tariff, but if the market price of fuels goes up, the variable rate could become more expensive. It really depends on the markets.
What is a standard variable rate?
The standard variable rate offered by an energy company tracks the price of fuels and raises or lowers its price accordingly.
Are dual fuel tariffs cheaper?
They can be – and often are – but it is possible to find a combination of separate gas and electricity deals which is cheaper than a dual fuel option if you search hard enough.
Do electricity suppliers do gas-only tariffs?
In some cases, yes, but there is a growing focus on electricity in the energy market now and as a result, many companies only offer dual fuel or electricity-only. Those that do offer gas-only include British Gas and Scottish Power.
How can I save money on my energy bills?
Switching energy suppliers regularly can save you quite a bit on your energy bills. Use a comparison site to find the cheapest deal for you. There are also lots of things you can do around the home to reduce your energy usage and therefore save money – there are lots of handy tips in our guide to lowering your energy bills.