Should I choose a fixed or variable energy tariff?
Are fixed or variable energy tariffs better? Here we explain the differences between fixed rate and variable rate energy tariffs to help you choose.
What is an energy tariff?
An energy tariff is how energy providers charge a customer for the gas and electricity they use. An energy tariff is made up of two costs which make up your bill:
- Unit rate – the price you pay for your electricity and gas which is charged at pence per kilowatt hours (p/kWh)
- Standing charge – a fixed daily cost for supplying energy to your home, regardless of how much gas or electricity you use. It covers distribution and metering services – like line rental for energy
How are energy tariffs billed?
For fixed rate, fixed term tariffs…
A fixed energy tariff means your unit rates and standing charge stay the same for the length of the plan. This will usually be for one year, 18 months, two years, or three years. Remember – it’s the cost per unit rate that’s fixed and not your bill. How much you pay is worked out by multiplying the unit rates for gas and electricity by the amount of energy you use plus the standing charge.
For variable rate tariffs…
This is usually a supplier's default rate, or standard variable tariff. A variable tariff means that your unit rates and standing charge can increase or decrease. Suppliers might change the price of your unit rates and standing charge if the cost of wholesale energy changes, or Ofgem, the UK’s energy regulator, changes the price cap. This means your bill could rise from month to month, even if you used the same amount of energy.
If you want to understand what all the information on your energy bill means, read our helpful guide.
What are the differences between a fixed and variable energy tariff?
A fixed price energy tariff means that your unit price for gas and electricity won’t change for the duration of the plan. A variable energy tariff means your energy prices can change during the plan.
Fixed versus variable energy plans
Fixed energy tariff
- You pay the same price for your standing charge and energy units for the length of the plan
- Your contract length is fixed – so it has a set end-date
- You generally pay an early exit fee if you leave your plan before the contract end date
Variable energy tariff
- The price for your standing charge and energy units can go up or down
- Your contract is usually open ended
- No exit fees - you can switch to a new provider or pick a fixed tariff from your current energy supplier
What are the pros and cons of a fixed energy tariff?
Pros of fixed tariffs
- Peace of mind - if you’re on a fixed-term tariff and Ofgem increase the price cap, or your supplier announces a price rise, your prices won’t change
- Lots of choice – you can choose a short or longer contract length or lowest monthly cost. Some tariffs also come with additional benefits, or renewable options
- It can make costs easier to budget if you keep a careful eye on energy usage
Cons of fixed tariffs
- If energy prices drop when you’re on a fixed rate tariff, then you won’t get the benefit
- Most providers charge an exit fee if you leave a fixed rate contract before it ends. Ofgem has ruled that your energy supplier can't charge you any exit fees if you switch within the last 49 days (or seven weeks) of your contract (or from the date you received your Statement of Renewal Terms if earlier)
- You’ll need to act at the end of a fixed term tariff if you want to fix your energy prices again
What are the pros and cons of a variable energy tariff?
Pros of variable tariffs
- If wholesale energy costs fall, then the price of variable tariffs often falls too
- Variable plans don’t usually come with exit fees, so you have the flexibility to switch at any time
- If you’re on a standard variable default tariff you’re protected by the energy price cap, which is the maximum you can be charged for your energy use. The energy price cap is reviewed regularly, usually in April and October, by Ofgem - the energy regulator and can go up or down
- Your supplier will always give you advance notice before increasing your prices
Cons of variable tariffs
- If prices rise, so does the unit rate and standing charge you pay, so your bill will increase
- Can make it more difficult to budget
- If you choose a variable tariff, then it’s advisable to keep an eye on prices and consider changing to a better deal if prices rise sharply
Why is the energy price cap important?
Ofgem maintains an energy price cap which they review regularly. This is the maximum amount energy suppliers can charge per unit of energy and standing charge for customers on a standard variable default tariff. Ofgem sets the price cap for summer and winter based on the wholesale energy cost. Energy suppliers will adjust their prices to the new price cap. Fixed-term tariffs are not covered by the energy price cap.
Keep up to date with the energy price cap and other energy market news.
British Gas energy tariffs. Compare our energy plans and choose what works for you
We offer a range of energy tariffs that work for you and your home. You can choose to fix your prices, go green or include home energy services as a bundle.
How do I decide if a fixed or variable energy tariff is best for me?
Choosing between a fixed or variable rate energy tariff is a bit like choosing between a variable or fixed mortgage deal. Both have their merits.
The cost of fixed price tariffs will depend on the conditions of the energy market. Fixed deals become less attractive if wholesale prices are high because suppliers have to charge more.
Although a variable tariff may offer the cheapest prices at the outset, it might not in the future. If a fixed tariff isn’t the cheapest option, think if you are happy to pay slightly more to get the guarantee that your energy prices won’t go up.
There are no right or wrong answers when choosing between a fixed or variable energy plan. The best type of energy tariff for your home depends on what you think energy prices will do in the future and your attitude to risk. Compare energy suppliers to find the best deal for you.
Want to know more?
Your energy bill
Understand what all the information on your energy bill means.
Average energy bill
How does the energy you use compare to the typical UK household?
Compare energy suppliers
Follow our simple steps and find the right energy suppliers for you.