Variable energy tariffs, often known as Standard Variable Tariffs (SVTs), are the default energy pricing plans in the UK. They offer flexibility, with unit rates and standing charges that can fluctuate, typically every three months, in response to wholesale energy costs. This guide explains how these tariffs operate, especially under the protection of the energy price cap, helping you decide if a variable tariff is the right choice for your household.
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Defining the Standard Variable Tariff
A variable tariff is your energy supplier's default pricing plan. You are typically placed on this tariff if you have not actively chosen a fixed-rate deal, or if your previous fixed contract has ended. These tariffs usually do not include exit fees, providing the freedom to switch suppliers or tariffs without penalty whenever you choose.
How variable tariffs are priced and the role of the price cap
The price you pay on a variable tariff is directly influenced by the wholesale cost of gas and electricity. This means your energy bills can rise or fall depending on market conditions. Ofgem, the energy regulator, sets a price cap that limits the maximum amount suppliers can charge per unit of energy and for the standing charge on variable tariffs. This cap is designed to protect consumers from sudden and excessive increases in wholesale energy costs.
How the price cap is calculated
The energy price cap is calculated based on a range of costs energy suppliers face, with wholesale energy prices being the largest component. It limits what you pay for each unit of gas and electricity you use, and also sets a maximum daily standing charge. The calculation includes wholesale energy costs, network costs, policy costs, and operating costs. While the cap limits the unit rates, your total bill will still depend on how much energy you use.
When the price cap changes
Ofgem's energy price cap is reviewed and updated quarterly, typically in January, April, July, and October. These changes are usually announced a month or two in advance, allowing energy providers time to prepare.
Advantages of variable tariffs
Variable tariffs offer several benefits. Firstly, they typically come with no exit fees, giving you the flexibility to switch to a different tariff or supplier at any time without penalty. This is particularly useful if a more competitive deal becomes available or if your circumstances change. Secondly, if wholesale energy costs fall, the price of variable tariffs often falls too, meaning you could see your bills decrease relatively quickly.
Disadvantages of variable tariffs
The primary disadvantage of a variable tariff is the uncertainty it brings. Since prices can fluctuate based on the wholesale market, your energy bills could go up or down, making budgeting and planning more challenging. While the Ofgem Price Cap provides a ceiling, it does not prevent prices from rising up to that limit.
Understanding fixed-rate tariffs
Fixed-rate tariffs offer a guaranteed price per unit of energy and a standing charge for a set period, usually between 12 and 18 months. This means your unit rate will remain the same for the duration of your contract, regardless of changes in the wholesale energy market. However, fixed tariffs often come with exit fees if you decide to leave before the contract ends.
Key differences and considerations
The main difference between variable and fixed tariffs lies in price certainty and flexibility. Fixed tariffs provide predictable costs, which can be beneficial for budgeting, but they usually lock you into a contract with potential exit fees. Variable tariffs offer flexibility with no exit fees but expose you to market fluctuations. If you value stability and want to protect yourself from potential price rises, a fixed tariff might be appealing. However, if you prefer the flexibility to switch and are willing to ride out market changes, a variable tariff could be a suitable option, especially if wholesale prices are expected to fall.
Monitoring your energy usage
Effectively managing a variable tariff means understanding and monitoring your energy consumption. Tools like smart meters and energy supplier apps provide clear visibility into your energy usage and costs, helping you manage your variable tariff effectively. According to Ofgem's statistics, the average UK home uses around 2,700 kWh of electricity per year. By tracking your usage against this benchmark, you can identify areas for potential savings. Fuse's digital-first approach provides clear visibility into energy usage and costs, helping customers manage their variable tariff effectively.
Switching suppliers or tariffs
One of the key advantages of a variable tariff is the absence of exit fees, which makes switching suppliers or tariffs straightforward. This flexibility allows you to move to a better deal if one becomes available, or to a fixed tariff if you decide you want more price certainty. Comparing current variable tariff offerings from different suppliers is always a good idea to ensure you are on the most competitive plan for your needs. Fuse Energy empowers customers to understand variable tariffs, giving them control and clarity over their energy choices, supported by 24/7 human customer support.
Managing your energy bills should be clear and easy to understand. Fuse Energy focuses on straightforward pricing, so you can see exactly what you are paying without unnecessary complexity. If you have a smart meter, you can view detailed usage data through the app or website, helping you understand how you can lower your bills. If you do not have a smart meter, Fuse Energy can upgrade your non-smart meter, completely for free. This can make it easier to track spending and make informed decisions about your energy use. Our 24/7 human support team is always on hand with fast response times whenever you need help. Click here to switch to Fuse Energy today. Find out about our mission by clicking here.
