Understanding energy plans can be a bit confusing, and as you start your search for the best energy switch, you’re likely to encounter the term ‘variable rate tariff’. Read on to discover more about this type of energy plan.
In this guide:
What is meant by variable energy tariff?
Am I on a standard tariff?
What is a default tariff?
Why do standard variable tariff prices change?
Should I get a variable tariff?
Is a variable electricity tariff cheaper?
When is a standard electricity tariff better?
Do I have to change a standard tariff plan every year?
Standard tariff vs. fixed energy tariff: pros and cons
A variable energy plan is basically the opposite of a fixed rate energy plan. It’s also known as a standard plan or standard variable tariff (SVT). Whereas fixed-rate plans lock the unit rate of your energy consumption for the specified period (anywhere from 12-36 months depending on supplier), then you’re on a standard plan, where the unit rate (in kWh) can vary from month to month.
Most people find themselves on a standard variable tariff (SVT) because they simply don’t know what energy plan they’re currently on, or because their previous fixed-rate tariff has lapsed. A standard energy plan is the simplest type of tariff offered by energy suppliers. They’re also usually the most expensive tariff type on offer, which is the principal reason for avoiding them, but there are pros and cons to both types.
You might also see standard plans referred to as ‘default’ or ‘basic’. They are also sometimes called ‘deemed tariffs’ if you are placed on one because your fixed rate plan has ended. As a standard tariff also doesn’t have an end date, they can also be called 'evergreen' plans.
There are different reasons your bills change from month to month if you are on a variable tariff:
If you are on a fixed price plan, your monthly payment remains the same even if you use a little less or a little more in any given month, however, on a standard plan, every kilowatt-hour you use is reflected in your final bill.
Suppliers need to purchase the energy they give to you, and the cost of this is determined by its current wholesale price. If these prices go up, so will your bill.
This covers the logistics of getting your energy to you, and depending on its starting location, can also impact pricing.
The government sometimes imposes extra fees on suppliers like charges on non-renewable sources and these costs will often be passed onto the customer.
As with pretty much everything in life, tax is payable on energy in the form of VAT (currently set at 5%). If tax hikes occur, you’ll see the impact on your monthly bill.
Also known as your standing charge, this covers items such as the administration of your account. Unlike the unit price, it will usually be fixed month to month. Some tariffs may even waive standing charges altogether.
In the case of most people, no. Variable rate tariffs are generally viewed as the most expensive way to supply your home with energy as prices go up as well as down. Even minimal price rises over a year might quickly add up to what would be a whole extra month of energy if you were on a fixed price plan. Ofgem rules stipulate that your supplier must give you 30 days’ notice if your prices are due to increase, but providers may fail to inform you if prices drop.
A variable tariff isn’t usually the most cost-effective option for your home. There are some exceptional cases (see below), but usually being on an SVT is seen in negative terms if saving money is your priority.
There are some occasions when you will have no choice but to – temporarily at least – go on to an SVT – for example, setting up energy in a new home. If the previous owners have cancelled their contract, you will automatically be on a standard contract with their last supplier and it’s up to you to find a better deal.
Standard tariffs, along with prepaid meter plans, are protected by Ofgem’s price caps to stop you being charged too much for energy. While these can help prevent extortionate costs, they don’t apply to fixed rate plans as those are already considered to be better value.
Standard variable tariffs can be made to work for you, but typically only as a short-term measure. For example, when you’re likely to be resident in one place for only a relatively short period of time – less than the minimum 12-month term that’s typical of most fixed-rate tariffs. In these circumstances, paying a variable price may work out cheaper than facing the additional cost of expensive exit fees for leaving a fixed-rate plan early.
Standard energy plans have no exit fees, so that’s good news for those who don’t want to be tied into a specific tariff. But it’s not necessarily a compelling reason to choose a SVT – some suppliers like Octopus Energy don’t charge exit fees on their fixed-rate plans (you merely have to provide 30 days’ notice before ending it), while other suppliers looking to attract your custom will offer to pay your exit fees when you switch to them.
In these circumstances, you could enjoy the savings and stability of a fixed-rate plan until a few months before moving, then switch to a standard plan with a provider that will cover your exit fees. When you move out, cancel your variable contract, allowing you to move to your new home without incurring any cancellation charges.
Being on a standard tariff also removes the need to be vigilant when your fixed term contract comes to term, ending your discounted period and potentially seeing an increase in your monthly bills. If the idea of yearly admin and energy switches doesn’t appeal to you, then you might prefer a standard plan. If you are happy to stick with a standard plan, then you might still be able to enjoy savings, as prices of energy can go down as well as up, so you may strike it lucky and enjoy a period at lower prices.
|Standard variable plan||Fixed price tariff|
|No exit fees||Exit fees per fuel (on most – but not all – plans)|
|Prices per unit fluctuate||Prices per unit remain the same for the duration of the plans|
|Pricing limited by Ofgem price cap||No price cap|
|Open-ended (no end date)||Set end date|
|No fixed duration||Usually 12-18 months|
|Can end any time||Where exit fees exist, can only exit without penalty during the ‘switching window’, which opens 49 days before the plan ends|
|Not immune to price rises||Fixed prices won't change during contract|