Energy Tariffs Guide
How to choose the right energy tariff to lower your bills
When it comes to selecting the right energy tariff, there are several important factors to consider before making your decision. In this article, we'll break down the key components of an energy tariff and highlight what you should keep in mind when choosing the best option for your needs.
To start, an energy bill is made up of 2 parts – the Standing Charge and the Cost of an Energy Unit (usually referred to as the rate).
Standing charge: A standing charge is a fixed rate daily fee that is added to your energy bill and is separate from the energy you use. This means that even if you are not living in the property and are not using energy, you are still incurring a daily fee. This standing charge is used to pay for the infrastructure and maintenance of the energy network. For example, in the month of June there are 30 days, and the average standing charge is 51p per day. This means in June you will incur a cost of £15.30 for the month of June, even if you didn’t use any energy.
Cost of unit: This is the price of 1 unit of electricity or gas that you use which is usually in kWh (Kilo-watt hours). This means that the more energy you use, the higher your bill will be at the end of the month. For example – if you pay 26p for 1 unit of energy, and you use 200kWH of energy (200 units), you will pay 200 x 0.26 = £52.00 for your energy bill.
Your energy bill is a combination of the standing charge and energy usage across the month. So using the example above, your energy bill would be £15.30 + £52.00 = £67.30.
Are you on the right tariff for your energy consumption?
If you are unsure, there are a few key points to think about:
Fixed vs variable rates on tariffs:
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This means that every unit of energy is the same price regardless of how much you use. (For example, 1 kWh is 26p like in the previous example).
This is advantageous because it allows you to budget effectively, as you can see your previous energy usage in kWh and get a good estimate of your upcoming energy bill.
This also means that regardless of what the global energy market is doing, you know that you have this fixed unit price for a set amount of time – 1 year, 18 month, 2 years etc. Therefore, this also means if energy prices drop, you won’t benefit from the lower rates, equally, if prices increase, you will not be have to pay any extra. Be aware that as the rate is fixed for a set duration, if you choose to leave the contract early, there is likely to be an exit fee.
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A variable rate price means that your energy price fluctuates with the global energy markets - meaning it could go up or down.
This means that if the energy market is strong and stable, you could see a reduction in your energy bills. However, it could also mean that your energy bills could be a lot higher depending on the global situation.
However, this tariff provides more flexibility as you are not tied into a contract and as such it is likely to be no exit fees if you wanted to switch providers or tariffs.
Static vs dynamic tariffs:
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A static Time of Use Tariff, is a version of a fixed rate tariff (as described above), but instead of having 1 set energy unit price (for example 26p) across the whole day, there are 2 different unit prices split across the day.
An example of this static time of use tariff is Economy 7:
Under Economy 7, there is the standard fixed ‘peak rate’ for 17 hours of the day (usually around 7am - 12am), whereby you may pay slightly more for your energy unit (for example 30p).However, during those 7 hours during the night, you will pay much less for your energy units (for example 15p).
This is aimed at households that could switch at least 40% of their energy usage to night time, which could help them save money on their energy bill. For example: In the above example where 200kWh was consumed in the month of June, with the energy usage coming to £52.00 (excluding the standard charge).
If this family was on an Economy 7 tariff, then their energy bills might look slightly different:
60% of energy usage during the day. 120kWh at 30p = £36.00
40% of energy usage during the night 80kWh at 15p = £12.00
Total bill = £48
This is £4 off your energy bill per month, so £48 per year.
If you could use 60% of your energy at night this would look like:
40% of energy usage during the day. 80kWh at 30p = £24.00
60% of energy usage during the night 120kWh at 15p = £18.00
Total bill = £42
This is £10 off your energy bill per month, so £120 per year.
You can see how this gives you more control in reducing your energy bill based on your own behaviour changes. Some examples of behaviours that could save you money, include:
1. Putting your washing on at night
2. Putting your dishwasher on at night – using a smart timer etc
3. Heating your electric storage heaters at night
4. Heating your hot water at night
5. Charging your electric vehicle at night
6. Slow cook food overnight -
Similar to variable rate tariffs which change every 3 months, there are also Dynamic Time of Use Tariffs, whereby the price per 1 unit of energy changes each hour and differs between days.
For example, instead of costing 0.26p per unit, on a Sunday afternoon it would be half price at 0.13p.
You would receive these price notifications in advance which allows you to adapt your energy usage and pay less for your energy. This does require flexibility and being engaged and proactive on your energy consumption, otherwise you might find that you’re paying higher ‘peak prices’ and not making use of the lower peak prices.
Smart Energy Tariffs:
If you have Solar panels or an Air Source Heat Pump (ASHP) in your home, there are specific tariffs which would be worth investigating to make the most of these low carbon technologies and save you more money.
Solar PV Tariffs:
The main tariff to explore when you have solar panels, is the Smart Export Guarantee. This is the tariff that allows you to sell unused energy back to the Grid. For more information, please see this article: Smart Export Guarantee — Nottingham Energy Partnership
Air Source Heat Pump Tariffs:
These are Static Time of Use tariffs that have been specifically created to ensure that heating your home with renewable ASHP energy does not increase your energy bills. Since ASHPs are most effective when switched-on continuously, tariffs that offer multiple lower rates during specific ‘off-peak’ times can help you save money by switching to an ASHP.
Details are in the graphic below (click to enlarge & zoom):
ASHP uses on average 8kW per day or 0.3kWh. So on a normal static tariff this would cost (8kWh x 0.26) £2.08 per day
On an ASHP tariff, if usage was spread equally across the day, this would cost: £1.53
7 x 0.3 = 2.3 x0.1 = 0.23p
9 x 0.3 = 3 x 0.2 = 0.60p
5*0.3 = 1.6 x 0.3 = 0.50p
3*0.3 = 1 x 0.2 = 0.20p
Total = £1.53
In conclusion:
There are lots of things to consider when looking at your energy tariffs and it is important to reflect and understand your own energy consumption and when you use the most energy. If you have a smart meter this can be easier to find out, but these are the main things to consider:
Balancing the cost of the energy unit with the standing charge. If you use less energy, then having a lower standing charge would be better as you are already using less energy. However, if you have a higher energy use, then having a lower price per unit would be better for you.
Fixed vs variable: whether you want a fixed price and to be locked into this fixed price for a set amount of time. If you are renting or moving, make sure you consider the exit fee on the fixed rate tariff. Additionally, if you move suppliers, make sure that you pay any debt you have and claim any credit you have accrued.
Do you have the flexibility to use your electricity at ‘off peak’ times of the day? In which case looking at a static time of use tariff might be more useful for you than a normal tariff. If you have the flexibility and capacity to adapt to the fluctuating energy prices, then a Dynamic tariff might be even better for you.
If you have solar panels, make sure you are on the Smart Export Guarantee, to ensure you are selling spare energy back to the National Grid or install a battery.
If you have an Air Source Heat Pump, then make sure you are on the most suitable ASHP tariff, as this could save you a lot of money.
If you are looking to find out more about tariffs and smart meters, and need some tailored advice, we have a dedicated team who can give you a helping hand. Just give us a call on 0115 985 9057.