Molly Ayala
Energy tariffs are how energy providers charge customers for their gas and electricity usage. There are two main types of energy tariffs: fixed and variable. Fixed tariffs are when the cost of energy is set for a certain amount of time, typically a year or more, and variable tariffs are when the cost of energy can go up or down based on the energy price cap or wholesale energy prices. Variable tariffs are also known as flexible tariffs.
| Characteristics | Values |
|---|---|
| Definition | A tax that a government collects on goods coming into a country |
| Pricing factors | Price of power generation, government taxes or subsidies, CO2 taxes, local weather patterns, transmission and distribution infrastructure, multi-tiered industry regulation |
| Customer-based pricing | Residential, commercial, and industrial connections |
| Variable tariffs | Prices can go up or down according to the market |
| Fixed-rate tariffs | Protects consumers from price rises, but bills will go up if more power is used |
| Capped prices | Maximum difference between one tariff and another is fixed in advance, but the total cost of payments at the end of the month is not capped |
| Dual fuel tariff | Gas and electricity are supplied by one provider |
| Time of use (TOU) tariffs | Shifts electricity consumption out of peak periods |
| Feed-in tariff (FIT) | An energy-supply policy that supports the development of renewable power generation and provides financial benefits to renewable power producers |
| Levelized cost of electricity (LCOE) | The net present value of the unit cost of electricity over the lifetime of a generating asset |
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What You'll Learn
Fixed-rate tariffs
An electricity tariff is how energy providers charge a customer for the electricity they use. Tariffs are usually either fixed or variable. Fixed-rate tariffs are good for budgeting as the same rate is applied to your usage, so as long as your energy use year-on-year is consistent, your bills will be around the same amount. Fixed-rate tariffs are also helpful for keeping control of your budget, and the rates you'll pay will probably be lower than those of the standard tariff. The cost per unit of energy (kilowatt hour) remains the same, regardless of wholesale market changes. You won't be affected by sudden energy price increases during your contract, and you can plan your finances more easily, knowing your energy costs won't suddenly rocket.
However, it's worth remembering that if you start using more power than usual, your bills will go up, but all the extra power used will be charged at the fixed rate. Also, if energy prices go down, you won't benefit because you're locked into paying the fixed price until the end of the term. When your fixed-rate tariff ends, you will need to find a new tariff, and if the energy crisis hasn't passed by then, you could still be exposed to higher energy prices.
Within fixed-rate tariffs, there are various options to consider and choose from to suit your needs. These include single or dual fuel, online account or paper billing, and green tariffs or normal tariffs. Single fuel means you buy gas and electricity from different suppliers, while dual fuel means you buy from the same supplier, which is often more convenient and can sometimes give you a cheaper deal. Running your energy billing online offers potential savings and ease, because there's no paperwork for your supplier to post to you. Some suppliers will charge you an extra fee if you want paper bills sent in the post. Green tariffs focus on the environment, such as sourcing energy from renewables, while normal tariffs source their power from a variety of typical sources which may or may not include renewables.
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Variable tariffs
An energy tariff is how energy providers charge a customer for the gas and electricity they use. Tariffs are usually either fixed or variable. Variable tariffs, also known as standard variable tariffs, are where your per-unit gas and electricity costs can vary at the discretion of your supplier. Prices on this type of tariff can go up or down according to the market.
If you have storage heaters or charge an electric vehicle overnight, a time-of-use tariff, sometimes called a multi-rate tariff, could work out cheaper. It charges you different rates at different times of the day. These times are often split into off-peak or night rates, which are cheaper to encourage you to use energy when others aren't.
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Dual fuel tariffs
An energy tariff is how energy providers charge a customer for the gas and electricity they use. Tariffs are usually either fixed or variable.
You can use supplier or comparison websites to find the best dual fuel tariff deals based on your consumption and preferences. You can also contact your individual electricity and gas providers to see what deals they can offer you.
If you have a smart meter to monitor your energy usage, you will only need one meter for both gas and electricity with a dual fuel tariff.
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Green tariffs
An energy tariff is how energy providers charge a customer for the gas and electricity they use. Energy tariffs are usually fixed or variable. Fixed tariffs are helpful for keeping control of your budget, and the rates you pay will probably be lower than those of the standard tariff. The cost of each unit of power is fixed, so if you start using more power than usual, your bills will go up, but the extra power used will be charged at the fixed rate. Fixed tariffs are designed to protect you from energy price rises. Variable tariffs can be cheaper, but they fluctuate with the market. This can be advantageous when energy prices are decreasing, but you will pay more when they rise.
Utility green tariffs are optional programs in regulated electricity markets that allow larger commercial and industrial customers to buy bundled renewable electricity from a specific project through a special utility tariff rate. This provides an option for larger energy customers to meet their sustainability and renewable energy goals, reduce long-term energy risks, and demonstrate a commitment to developing new renewable energy projects. As of October 2023, 62 active utility green tariff programs have been approved or are pending approval across 30 utilities in 30 states.
The Green Electricity Tariff (GET) is a government-introduced program that offers low-carbon electricity supply to all consumers. GET consumers can only increase their subscription amount and no reduction is allowed throughout the subscription period. GET consumers pay the normal tariff for monthly electricity consumption plus GET blocks subscription.
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Time of use tariffs
Smart meters enable smart time of use tariffs by providing frequent and accurate readings of energy consumption. This helps users receive accurate, non-estimated bills and can also help energy suppliers offer tariffs that can adapt to changes in demand. Many people on these tariffs have a battery that they charge with lower-priced electricity and use when prices are higher.
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Frequently asked questions
An electricity tariff is the rate at which electrical energy is sold to a consumer. Tariffs are dependent on many factors, such as the price of power generation, government taxes or subsidies, CO2 taxes, local weather patterns, transmission and distribution infrastructure, and multi-tiered industry regulation.
There are several types of electricity tariffs, including:
- Fixed-rate tariffs: The cost of each unit of power is fixed, meaning that while your bill will increase if you use more power, the extra power will still be charged at the fixed rate.
- Variable tariffs: Prices can go up or down according to the market.
- Dual fuel tariffs: You get your gas and electricity from a single supplier.
- Capped tariffs: The maximum difference between one tariff and another is fixed in advance.
- Time of use (TOU) tariffs: These shift electricity consumption out of peak periods, helping the grid manage variable renewable energy.
- Feed-in tariff (FIT): An energy supply policy that supports the development of renewable power generation by providing financial benefits to renewable power producers.
The electricity tariff is calculated by considering the different types of consumers, such as domestic, industrial, and commercial. The tariff should include the total cost of producing and supplying electrical energy, as well as the profit for the power company.
The cost of electricity can vary by country, locality within a country, and power source. The cost of electricity is influenced by factors such as the price of power generation, government taxes and subsidies, CO2 taxes, local weather patterns, transmission and distribution infrastructure, and industry regulation.
