The price you pay for your gas and electricity is calculated based on the energy tariff you have chosen from your energy provider. Most energy plans are based on a daily charge referred to as the daily standing charge and the kWh rate you pay for every kWh of gas and electricity you use.
Gas and electric tariffs vary depending on who your supplier is, the current wholesale price, government levies and a number of other factors. It's your energy supplier that takes all of these costs and packages up into tariff rate that they charge their customers.
You have a gas and electricity tariff that partly determines how much your monthly energy bill comes to each month or each quarter. However the most important factor is how much gas and electricity you use at home.
There are two ways you can reduce your energy bill. You can use less energy or you can pay less for your energy. I'd advocate you do both as this would have a greater impact on your household bills and your electric and heating costs long term.
The easiest and least time intensive way to reduce your energy costs is to switch to a tariff that has lower rates. The quickest and easiest way to do this is to compare the tariffs offered by energy companies and choose one that offers cheaper rates but is also reliable and offers good customer service.
Take a look at our list of the top energy companies in the UK based on customer reviews and tariff pricing.
What is an energy tariff?
Most tariffs in the UK are made up of a daily standing charge and a kWh rate. The daily standing charge is a fixed daily price in pence that your energy provider charges you regardless of how much energy you use.
Daily standing charge
Daily standing charges are applied to your gas supply and electricity supply separately. If you are on a dual fuel tariff you will be charged for both gas and electric, if you are electricity only then you will only have a daily standing charge for electric.
The amount you pay for your standing charge is small compared to the percentage of your bill that goes towards paying for the actual energy you have used. As a general rule the amount you pay on your standing charge equates to one of your direct debit payments for energy compared to 11 to cover the kWh charges for the energy you use.
In the big scheme of things it is best not to focus too much on standing charges and instead look at what the kWh rate the company charges for gas and electricity.
Standing charges for gas and electric range from around 20 pence to 40 pence per day.
No standing charge tariffs
Some providers offer no standing charge tariffs but they will increase the kWh charge to compensate for this. In general zero standing charge tariffs are only going to save you money if the property is empty for most of the year.
Energy companies like Utilita charge the first fifty pence of energy used each day at a higher rate to compensate for the fact they have no standing charge. Overall tariffs without a standing charge end up costing about the same as tariffs with standing charges.
The rate charged for each kilowatt hour of gas or electricity that you use is going to have the most significant impact on your energy bill.
The lower the kWh charge the lower your cost for the gas and electricity that you use at home will be. The kWh rate can vary greatly depending on the type of tariff and who the supplier is.
If we look at the current tariffs available from Goto Energy they charge 2.6901p/kWh for gas on their variable tariff and 14.2125p/kWh for electricity. The 12 month fixed deal they offer has a gas rate of 2.5440p/kWh and a rate for electric at 15.7520p/kWh.
One tariff has a lower gas rate and the other has a lower rate for electricity, You can see how rates vary even with the same supplier. It's difficult to compare rates by looking at them this way so you have to use a comparison service that will calculate the cost for you based on how much gas and electricity you use over the course of a year.
You can look at rate generally and compare them. If you look at a more expensive tariff such as the current 2 year fixed rate from Shell Energy they charge 3.301p/kWh for gas and 18.402p/kWh for electricity. Both these rates are far more expensive then the Goto Energy tariffs we just mentioned.
Whilst it is important to know what the kWh rate for the tariff is to compare them the issue is that people will not know what rates utilities charge and what's available let alone if one is better than another unless you use an energy comparison site that can compare rates for you.
Fixed rate and variable rate tariffs
The two main types of tariff are fixed and variable. Fixed means that the kWh rate and standing charge are fixed in price for a specific period, usually 1 or 2 years but there are some longer term 3 year fixed energy deals available although they tend to have higher rates and higher exit fees. Conversely variable rate tariffs can increase or decrease in price but tend to not have exit fees.
Variable rate energy tariffs
Variable rate tariffs have a daily standing charge and kWh rate that can change. Prices can go up or down depending on factors such as an increase in the cost of natural gas and electricity on the wholesale market. Standard variable rates of evergreen tariffs are slightly different as these are the tariffs many of the larger energy companies charge their customers once a fixed rate deal comes to an end.
Some energy firms such as Bulb have differentiated themselves from other suppliers by only having one tariff. Bulb's Vari-Fair variable rate tariff is designed to offer simpler fair pricing.
Variable rates usually do not have any exit fees associated with them so you are free to switch to another supplier without any financial consequences. They also tend to be the cheapest deals on the market and generally cost less than fixed rate tariffs over the shorter term.
Fixed rate energy tariffs
Fixed term energy deals have the security of knowing how much you are going to be charged for the energy you use over a fixed period. Many people like these tariffs because it means they don't have to worry about checking prices or switching for up to 3 years.
The longer you fix an energy tariff for the higher the rate you will be charged. A 3 year fixed tariff will generally be more expensive than a 2 year and a 2 year more expensive than a 1 year fix. Some 1 year or 12 month fixed rates can be cheaper than variable rates and can often have no exit fees.
As an illustration a comparison of energy tariffs in February 2021 shows that Avro Energy has a 1 year fix with no exit fees costing around £79 a month. A similar fixed deal from Utility Point costs about the same except it has a £36 per fuel early exit fee. It means that if you wanted to switch from Utility Point before your 12 month fixed rate ends a dual fuel customer would have to pay a total exit fee of £72. The same customer on the Avro deal could switch without incurring any fees.
Types of Energy Tariff
Whilst price is one of the most important factors for customers when it comes to choosing a tariff there are other factors that could affect the type of tariff you choose to switch to. We'll cover some of the different types of energy tariff and explain why you may want to switch to them.
Standard single rate tariffs cover the vast majority of households, these are the general tariffs available to most people in the UK. These include both variable and fixed rate tariffs
Tariffs for switching to a Smart Meter
There are specific tariffs available at cheaper rates if you agree to have a smart meter installed. OVO Energy's Better Smart tariff gives you a 12 month fixed deal about £3 cheaper a month compared to their Better Energy tariff as long as you agree to get one of their smart meters installed.
Switching energy just because you get a smart meter discount is not a problem if you were going to switch to that energy company anyway. However if you wanted a cheaper energy deal and not specifically wanting to get a smart meter installed then you should shop around as many of these get a discount if you get a smart meter installed offers are generally more expensive than tariffs available generally.
Economy 7 tariffs
If you have an economy 7 meter then you get Economy 7 rates where you pay less for the electricity that you use at night but get charged a slightly higher than average day rate. YOu need to have an Economy 7 meter installed already or get your current electricity meter replaced in order to use the two rate tariffs.
Economy 7 tariffs are designed for homes that use more electricity at night. These tend to be electricity only households that have night storage heaters and electric immersion tanks for hot water.
To save money by switching to an E7 tariff you would need to significantly shift your energy usage to take advantage of the night time rate. For most households switching to an economy 7 tariff would not save them money.
Energy tariffs of EVs
EV tariffs are similar to Economy 7 in that you get a cheaper off peak rate. EV tariffs are specifically designed to suit owners of electric cars that are charging their vehicle at home. Most EV tariff require you to provide proof that you own an electric car before you can switch to this type of tariff.
An EV tariff can provide as little a 4 hours of very cheap rate of 5p/kWh charging with the Octopus Go tariff to as long as 21 hours of off peak charging at 12.75p/kWh with Bulb's Smart tariff.
Pay as you go tariffs
With a prepayment meter you top up your gas and electricity rather than pay a fixed monthly direct debit. You have to have a prepayment meter installed and either install an app to top up, top up by phone or at certain shops.
Usually you would not want a pay as you go meter as the kWh charges and daily standing charges are higher than standard meters.
Green Energy tariffs
Green or renewable energy is more common and many newer suppliers provide 100% renewable energy as standard. Switching to a renewable energy tariff used to be for those who prioritised the environment over cost as green tariffs used to be far more expensive.
If you search for a green tariff these days then you are likely to find that they are generally cheaper than non-renewable energy deals. At the time of writing 8 out of the top 10 cheapest energy deals are green. There are a number of green energy suppliers to choose from.
There are now a number of UK energy suppliers that specialise in supplying only renewable electricity and a few are going a step further to offer green gas and offer offset or carbon neutral tariffs.
Tariffs that offer green gas are more expensive as this is a relatively new offering on the UK energy market. However it is worth mentioning supplier Green Energy UK if you are looking for the greenest of green energy.
Time Of Use energy tariffs
For consumers that take more interest in what energy they use and when they use it you can get cheaper electricity by switching to a Time Of Use tariff (TOU) where your kWh unit price changes throughout the day. These price changes vary from tariff to tariff but generally offer cheaper prices when demand is low and supply is high.
If you are willing to shift your home electricity usage patterns you could reduce your electricity bill. According to a Citizens Advice report on the value of time of use tariffs they found that the most benefit to be had from switching to these niche tariffs was for households that had electric heating or charged an electric car at home.
At the moment time of use tariffs rely on consumers proactively changing their energy usage habits to realise savings. The Citizens Advice report does however predict that as automation in the home increases and more households become electric car owners then the savings will increase as tasks like charging the car automatically when kWh rates are lower will be automated.
It's worth noting that outside of Economy 7 these smarter tariffs require SMETS2 smart meter to be installed.
Green Energy UK TIDE tariff
The TIDE tariff from Green Energy UK offers cheap rate electricity at off peak periods but prices increase at peak times of the day. Essentially this tariff divides times of the day into three price bands, peak (Weekdays 4pm till 10pm), normal rates (Weekdays 7am till 4pm and 8pm till midnight, weekends 7am till midnight), off peak (Everyday from midnight till 7am).
The pricing matches demand where the cost of electricity is charged at a higher rate (32.55p/kWh) at peak times and at a discounted off peak rate (7.50p/kWh) when demand is low. All other times of normal demand they charge 15.50p/kWh.
The benefit of using a fixed time of day tariff is that you know when prices are cheaper so it is easier to plan when to take advantage of the cheaper rates.
This type of tariff would benefit households that have high demand appliances that can be used at off peak times such as charging an electric car or storage battery that may be coupled with solar panels. It wouldn't be suitable for households that would find it difficult to shift their energy usage outside of the 4pm to 10pm peak period when prices are double that of standard rates.
Agile Octopus tariff
The Agile Octopus tariff from Octopus Energy is also a time of day tariff but until the TIDE tariff that has 3 fixed pricing periods the Agile tariff changes price every half hour.
This type of pricing that matches wholesale market prices does mean it's not for everyone. Octopus claims that the average household can save £120 a year by shifting 75% of their electricity usage to off peak times.
If you are like me an energy geek and are the type of person that gets excited by API's then you'll love this tariff and probably save quite a bit of money.
There are some innovative features such as plunge pricing where you can get paid to use electricity when more electricity is being produced that can be used. A price surge cap so that customers never pay more than 35p/kWh. Both instances are rare and won't happen that often. To put it into context prices only dropped below 2p/kWh 31 times over the course of a year.
Octopus publishes the half hourly rates everyday to cover the following day so you can see when the cheapest times are to use your electrical appliances. Essentially avoiding the 4.30pm to 7.30pm peak periods when prices can be 4 to 5 times higher to reduce your bills.
Octopus Fan Club
The Octopus Fan Club tariff is another innovative tariff where the cost of electricity reduces the windier it gets. It is only available to households living near to Octopus's wind turbines and gives the households a 20% discount at relatively low wind speeds (98% of the time) but you get half price electricity at windier times.
How to compare energy tariffs for the best price
For most people changing to a different type of energy tariff will not save them money. If you have an electric car or have electric heating or an electric immersion water heater then it is worth investigating whether switching to an Economy 7 or other time of use tariff that offers cheaper rates at certain times.
However for most households a standard single rate energy tariff comparison will be the easiest option that is most likely to reduce their household energy bill.
You can visit the websites of energy suppliers directly to get a quote but that will not allow you to compare the quote you get against other suppliers.
It is worth visiting suppliers directly if you have already made a decision to switch to a specific supplier and wanted to confirm how much they will charge you before making a decision.
Some suppliers are not on energy comparison sites so you'd have to visit the suppliers website directly to get a quote and switch. Avro Energy tariffs are only available on their website and are worth considering as a supplier as they are highly rated and have some of the lowest priced tariffs.
Avro was rated as one of the best suppliers on our supplier energy reviews along with Green, Goto Energy, Octopus and Bulb.
You are going to get the cheapest energy quote with the least effort if you do an energy comparison yourself.
You could potentially save even more if you invest a little extra time in getting a quote directly from suppliers websites for those suppliers that did not show up on your tariff comparison.