Energy tariffs explained

What is an energy tariff?

An energy tariff is how an energy provider charges a customer for their gas and electricity use. The two main types of tariff are fixed-rate and variable.

• A fixed-rate tariff sets the cost of energy for a certain amount of time, typically one year or more

• Prices on a variable tariff can go up or down according to the market.

Why is my energy tariff so high?

The cost of gas and electricity has risen dramatically in the past few years. When it costs more for suppliers to buy their energy, these costs are passed on to customers like you.

You can compare energy deals with Compare the Market to see if there’s a better tariff out there for you.

And there are things you can do to help cut the cost of your energy bills. See our guide to energy saving tips, and find out what help is available if you can't pay your energy bills.

What our expert says...

“Lots of households will be looking at switching tariffs or locking in a new deal following the uncertainty driven by the global events of recent weeks. It is a good idea to have a look at what is out there to check if you could save by locking in a new deal.

“Moving to a fixed tariff can also provide protection from price volatility, as it locks in unit rates for the duration of the contract. This can offer greater certainty over monthly costs and help with budgeting."

Tom Lyon, Insurance and utilities expert

What about the energy price cap?

The energy price cap, set by energy regulator Ofgem, puts a limit on the amount energy suppliers can charge their customers per kWh for gas and electricity.

Under the current cap, which applies until 30 September 2026, the typical household pays:

• £1,862 per year by direct debit

• £1,812 per year by prepayment meter

• £2,005 per year on receipt of their bill.

Between 1 October and 31 December 2026, the energy price cap will rise by 4% on average those paying by direct debit. This means a bill based on typical usage will be £60 a year, or £5 a month, higher than the current cap.

However, a temporary VAT cut is also coming into effect on 1 October. This will save you an average of £45 on your energy bills.

But the VAT cut will only apply for six months, and with the price cap rising at the same time, actual savings will likely be minimal. So it's worth comparing energy deals now to see if you can save by switching to a fixed contract.

Find out more: energy price cap scheme explained

What are the different types of energy tariffs?

Here are some of the different types of tariffs to look for, so you can find one that’s right for you.

Fixed-rate tariffs

A fixed-rate tariff guarantees the price of your energy for a set period of time (usually 12-18 months). After this, you’re free to switch providers again. But if you leave early, you’ll likely be charged an exit fee.

Fixed rates are helpful for keeping control of your budget. The rates you’ll pay will probably be lower than those of a standard default tariff. However, only the unit cost is set at a fixed rate. This is how much you’ll be charged per unit you use. If you start consuming a lot more energy, your bills will go up.

Fixed-rate tariffs are designed to protect you from energy price rises. If you’re on a fixed-rate tariff, these price increases won’t be passed on to you, and your cost per unit (kWh) will remain the same.

Once your fixed-rate tariff ends, you’ll need to find a new tariff or you’ll automatically be moved to your supplier’s standard variable rate.

Pros:

• In a stable market, fixed-rate tariffs are often cheaper than a supplier’s default variable rate

• As the cost of your energy remains the same, it can be easier to budget

• Your cost per unit won’t be affected by price hikes in the energy market.

Cons:

• If you want to leave your contract early, you may be charged an exit fee

• If the cost of energy falls, you won’t benefit from cheaper bills.

Variable tariffs

Prices on a variable tariff can go up or down, according to the market. If prices fall, you could benefit from cheaper energy bills. Then again, you’ll pay more when prices rise.

How much you pay may also depend on how you pay. Customers who pay by direct debit typically pay less than customers who pay when they receive their bill.

Suppliers will also have a standard variable tariff as their default pricing plan. If you had a fixed-rate contract with your supplier that came to an end, they’ll probably have rolled you onto this tariff.

Around 22 million households in the UK are on a supplier’s standard default tariff – with around four million of those on prepayment meters, according to Ofgem. The good news is that standard variable tariffs are easy to get out of. There are no exit fees to pay, and you can switch providers at any time.

Pros:

• Flexible – there’s no early exit fee

• If energy prices fall, you can benefit from cheaper bills

• Default and variable rate tariffs are protected by Ofgem’s energy price cap. So, if prices go up, there’s a limit on how much your supplier can charge you per unit.

Cons:

• In a stable energy market, they can be more expensive than fixed-rate tariffs

• If energy prices go up, so will your energy bills

• Payments can fluctuate, which makes budgeting more difficult.

Tracker tariffs

Although they’re not common, tracker tariffs are offered by some suppliers, such as Octopus Energy.

Tracker tariffs follow the wholesale price of energy and can go up or down according to the market price. Depending on your provider and the type of tracker tariff it offers, the price could change daily.

With a tracker tariff, the cost of your energy per unit (kWh) is typically capped at a certain point – and it won’t go over this agreed amount.

You’ll need a working smart meter to switch to a tracker tariff. Smart meters are free, and you can ask your energy provider to install one. They show you how much energy you use in real time and automatically send meter readings to your supplier.

Pros:

• Can offer more stability, as rates won’t go above the agreed limit

• You could still benefit from a price drop if energy prices go down.

Cons:

• Tracker tariffs aren’t the cheapest

• You may be charged a penalty fee if you leave your contract early.

Dual fuel tariff

With a dual fuel tariff you get your gas and electricity from one supplier, which can make life a bit simpler. Suppliers may also offer a discount to get more of your custom.

It’s always worth checking what deals you could get if you signed up for gas and electricity separately – those savings might outweigh any discount you’re offered for both.

Pros:

• Combining your gas and electricity can often work out cheaper as you might be offered a discount from the supplier

• There is a good range of suppliers and tariffs to choose from

• Since you’re dealing with one supplier, you’ll only have one bill to manage, which means less hassle and paperwork

• If you have a problem with your supply or bill, having just one point of contact might make it easier and quicker to get the issue sorted.

Cons:

• There’s no guarantee a dual fuel tariff will be cheaper than separate gas and electricity tariffs – in some cases, it might be more expensive

• Even if you’re offered a discount, it might not outweigh the potential savings of two separate suppliers. Compare options to see which offers better value for money

• If you experience poor customer service, you’ll be stuck with the same supplier for both gas and electricity

• If you’re on a fixed-rate dual fuel deal and want to leave before your contract’s up, you may be charged an exit fee.

Prepayment tariffs

This is the energy equivalent of a pay-as-you-go phone. You’ll need to have a prepayment meter to use it. As the name suggests, you pay for the energy before you use it by topping up the meter online, with a key, card or tokens. You can still get a smart meter if you’re on a prepayment tariff.

Prepayment gives you total control over what you’re using and spending. But some of the best discounted deals for switching are likely to be reserved for those who pay by direct debit.

Pros:

• Can be a good option if you’re in debt or struggle to pay your energy bills, as you have more control over your energy spending

• You won’t be hit with any unexpected bills to pay

• You only pay for the energy you use and there are no ‘estimated’ bills to worry about

• You don’t need a credit check or bank account to set up a prepayment tariff.

Cons:

• The best energy deals aren’t usually available to prepayment customers and there are typically fewer tariffs and suppliers to choose from

• If you lose your meter key, card or token, or forget to top-up, you might find yourself without gas or electricity.

Smart meter, online or paperless tariff

With a smart meter or online tariff, you manage your account online only, with no paper bills or letters. If you opt for a smart meter tariff, you need to have a smart meter that automatically sends meter readings to the supplier.

Smart meter and online tariffs can be cheaper, as they save the supplier money on postage and paper. They’re also potentially more eco-friendly.

Pros:

• Easy to manage your account via your supplier’s website or smartphone app

• No piles of paperwork to keep in order

• ‘Paperless’ bills are better for the environment.

Cons:

• All correspondence is sent online, so if you like to file your paper bills away each month, this tariff may not suit you

• Most online tariffs don’t have customer call centres, so you won’t be able to pick up the phone and speak to someone if you have an issue.

Green tariff

Green, ‘eco’ or renewable energy tariffs work in a number of ways. One option is that whatever amount of energy you use will be ‘given back’ by your supplier to the National Grid in renewable energy.

Alternatively, they may supply your home with 100% renewable energy, a mix of renewable and non-renewable, or they could contribute to environmental projects instead.

Green tariffs aren’t necessarily always the most expensive. But price isn’t their best selling point and they may cost more than the cheapest tariff.

The green power market is growing steadily and is already outperforming traditional fossil fuel generation. In 2024, fossil fuels made up just 29% of the UK’s electricity – the lowest level on record – while renewables reached a record-high 45% and nuclear made up 13%.

Pros:

• Good for the environment – promotes renewable energy and can help cut carbon emissions

• Both large and small suppliers offer ‘green tariffs’ so there’s plenty of choice

• Renewables are the future of energy, so by opting for a green tariff, you’ll be making a sustainable choice.

Cons:

• Some suppliers may ‘greenwash’ by exaggerating the environmental benefits of their green tariffs

• Some tariffs labelled ‘100% green’ may not be that straightforward, so make sure you look into the green credentials carefully.

Economy 7, Economy 10 or time-of-use tariff

With an ‘economy’ tariff, you’ll typically get cheaper ‘off-peak’ energy for either seven or 10 hours a day.

Economy 7 usually has its off-peak hours between around midnight and 7am, whereas Economy 10 spreads its cheapest hours throughout the day at set times.

Some providers also offer time-of-use EV tariffs, specifically aimed at electric car owners for charging their vehicles overnight.

Off-peak energy can be cheap, but whatever you use outside of these times will be charged at a much higher rate.

Pros:

• If you can make the most of off-peak times, it could help save you money on your electricity bills.

Cons:

• Will not be suitable if you use more energy during peak hours

• It can be a hassle trying to arrange your energy use around certain times of the day and night

• Energy costs during the peak times can be higher than other tariffs

• You may need to get a special meter installed

• Switching to an economy tariff can be more complicated

• There aren’t that many deals around, especially for new customers.

Which energy tariff is right for you?

Choosing the most suitable energy tariff depends very much on your situation, living habits and personal preference. And while price is always a major deciding factor, there are other things to consider.

Here’s a quick rundown of the tariffs so you can see at a glance which could be a good option for you:

• Fixed-rate tariff – if you want the certainty of knowing how much your unit cost will be for a set period and are happy to stick with your contract until it ends

• Variable rate tariff – if you like the freedom and flexibility of switching whenever you want, and don’t want to be tied into a contract

• Tracker tariff – if you like a certain amount of stability but still want to benefit if wholesale energy costs go down

• Dual fuel tariff – if you want the convenience of one bill and dealing with just one supplier for both your gas and electricity

• Prepayment tariff – if you’re struggling with bills and debts, and want more control over your energy spending

• Online tariff – if you prefer to handle your energy account from your computer, tablet, or smartphone

• Green tariff – if you want to help the environment and reduce carbon emissions by getting your energy from renewable sources and eco-aware suppliers

• Economy 7, 10 or time-of-use tariff – if you use more energy at night or at certain times of the day, and are comfortable avoiding or minimising peak times.

What happens to my energy tariff if my energy supplier goes bust?

Energy regulator Ofgem has put a safety net in place to protect you. You don’t need to worry about your energy supply being cut off, because it will be transferred to a new supplier.

Ofgem will contact you to provide details of your new supplier and when the switch is made. You may want to take a meter reading at this time, because you’ll probably need it when your new energy supplier gets in touch.

Just be aware, you don’t get a say in which provider you’ll be transferred to, as all customers will be moved to a new supplier together. Unfortunately, you won’t get to choose which tariff you’re on either.

When you switch to a new supplier, you’ll be put on a new contract known as a deemed contract. This will be your new supplier’s default tariff, which might be more expensive than your old tariff.

Ofgem recommends waiting until this process has been successfully completed before thinking about switching, to avoid complications. But the good news is that you’re not locked in to a deemed contract in any way, so after the changeover you can switch tariff or supplier at any time without facing any penalty or fee.

Find out more on how to switch energy suppliers.