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Understanding your Electricity Tariff

Understanding your electricity tariff

So, you’re thinking of making the switch or moving home? Perhaps you've already switched but you just don't have a clue what any of the jargon means on the tariff label or electricity bill? Have a read of our simple guide to electricity tariffs so you can make an informed decision with confidence before signing your soul away in the fine print.


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How Do I Pay my Electric Bill?


checking electricity bill

There are generally three options that you can opt for when choosing your payment method on your quotation: Direct Debit; Cash or Cheque; and Pay as You Go. Each has their benefits; however, we recommend that the majority of our customers opt for direct debit. Not only is direct debit much more customer-convenient, but most companies will actually offer discounts for those who pay using this method. For example, E·ON offer a £35 a year saving on your electricity standing charge if you chose to pay with direct debit.


Types of Electricity Tariff

The two principal tariff types offered by energy utilities are fixed and variable. Each relate to the unit rate per kWh. This means that you are going to pay a fixed rate or variable rate for your electricity. Variable tariffs will adjust according to the wholesale price of electricity; this means your bill may get cheaper but it's more likely to get more expensive over time; whereas, if you’re on a fixed tariff, despite often having a slightly higher unit rate than the then-present variable tariff, it will not change for your contracted tariff duration, leaving you safe in the knowledge that your bill is not going to soar at any given moment.


Unit Rate - the Cost of Electricity

The unit rate refers to how much each kWh of electricity will cost you. This is by far the biggest part of This will fluctuate with an electric company variable tariff; however, remains at a fixed rate if the customer has opted for a fixed tariff.

kWh = Kilowatt Hour. Simply put, it is a unit of measurement for energy. It is what an electricity provider uses to convey a customer’s gas and electricity usage. It is, however, rather difficult to transfer this into daily activities; it basically means that if you left a 1000W appliance on, it would take one hour to use one kWh unit. In a real life scenario for example, 1 kWh has the ability to power a 42” plasma TV for around 3 hours.

kWh graphic


Standing Charge - Residential delivery fee

A ‘standing charge’ is a fixed price charge that is added to your bill in order to cover utility costs such as:

  • Keeping your house connected to your Distribution Network Operator
  • Carrying out meter readings
  • Maintenance
  • Contributions to government initiatives such as helping out vulnerable homes.

Since the Retail Market Review in 2010, energy regulators Ofgem have tried to create a fairer deregulated market for consumers by preventing the over-inflation of pricings by making the claim that it was to cover fixed costs. Now, every energy tariff in the UK has to contain a standing charge. This makes the costing structure much more transparent and easy to understand. This price is usually displayed on your quote as ‘per day’ in a pence figure. Companies, however, are permitted to set their charge to £0, meaning that you will not have to pay a standing charge on these tariffs.

£0 Standing Charge

As mentioned above, each energy tariff has to have a standing charge figure. There isn’t, however, anything stopping energy companies from charging their figure at £0. This might sound like a good thing; however, it frequently is not. Generally if a company offers a £0 standing charge, their energy unit rate is much higher in cost than the industry average, reverting back to the unclear, non-transparent costing system that Ofgem are trying to eliminate. If, however, you have a property that is uninhabited for much of the year, this may be something to think about, as you will only be charged based on how much energy you are using.

Economy 7 - Off peak tariff

Economy 7 is the name of an electricity tariff that has a cheaper off-peak rate at night and a more expensive daytime peak rate. If you have a home that is all electric with storage heaters and you can use large appliances during the cheaper hours set by your electricity provider, then Economy 7 might be for you.

Learn more about Economy 7 tariffs and metering


Terms & Exit Fees


electricity bolts

A contract length will only apply to fixed-term tariffs, as this will be the amount of time that you wish to freeze the given price until. For example you could perhaps choose a tariff that has a unit rate of 13.81p per kWh that is frozen until 2018. Technically, you do not have to fulfil your contract until the agreed termination date, however, failing to do so will unfortunately incur an exit fee. If you wish to change providers or tariffs before the end of your term, you will have to pay a predetermined exit fee. This varies between companies.

There are some fixed rate tariffs available in the electricity market that do offer the possibility to leave without having to pay an exit fee. To find the cheapest fixed tariff with stellar customer service but without exit fees, you can speak to one of our energy experts by calling 01704 325069.


VAT

All costs, discounts and incentives are subject to a standard VAT rate of 5%.


How much have electricity prices changed in 2018?

We all know that our electricity bills are, and have been, going up for a while. We seem to be getting less and less for our money for exactly the same product, but why is this? Well, the general reasoning is due to the rising wholesale prices of electricity and upgrading the National Grid. Also, as the government demands more and more green energy, there is more investment needed in renewable generation. These factors and more are pushing up the price of the kWh without signs of stopping.


How much has electricity increased in the last year?

The summer of 2018 has seen significant electricity price hikes across the board. The larger electricity suppliers like SSE, EDF, British Gas, E.on, Scottish Power and Npower have increased their prices by 5.5% on average. These are quite significant increases when it comes to electricity costs for residential consumers.

electricity bolts

UK electricity generation remains very much fossil and nuclear power plant reliant. Although recent inroads into renewable sources like green gas and hydropower hold much promise in helping the UK become energy independent, especially with Brexit looming this spring.

Smaller energy companies have been quick to bolster a renewable electricity supply that is both environmentally sound and affordable. The future is looking increasingly green with renewable energy set to take centre stage which can only be a good thing for people's wallets since it is close to beating traditional sources in terms of value for money.

Energy suppliers are still far off from reflecting the potential savings from moving to green energy in their energy prices so far.




Source: Ofgem

Can people afford increasing electricity prices?

The majority of UK citizens are not seeing any increase in wages, meaning purchasing power per capita is dropping quite drastically. According to the ‘Office of National Statistics’ the number of adults working within 2% of the national minimum wage, around £13,824 (40 hours a week at 7.20p per hour), was 1,322,083 in 2015, which will have surely increased within the last year.

money

This means that the average electricity bill can represent anything between 2-8% of the earnings of this portion of the UK population. Even though energy efficiency has improved dramatically over the years with better energy ratings for appliances and boilers, this hasn't been sufficient to offset rising electricity rates and dampen household electricity consumption.

Since the regulated energy market was abolished in 1999, the promise of people being able to easily find the cheapest residential electricity has failed to materialise. Only time will tell if the fairly recent smart meter initiative to give customers accurate kilowatt hour metering will pay off in reducing energy bills.

Let's see just how much prices have risen over the years.

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2006-2016 electricity prices

In order to compare the price of electricity across time, we need to use the Consumer Price Index (CPI). This measures the average prices in a chosen geography for everyday items such as petrol, groceries, electricity and clothing. Each figure represents a relative figure to the base unit which we would consider ‘average’. For this example we have chosen 2010 to be our base figure (100). We have also added a column to display the increase or decrease that occurs year on year.

Electricity price change by CPI
Year CPI Price change
2006 78.6 -
2007 84.9 +8%
2008 98.1 +15.5%
2009 102.6 +4.6%
2010 100 -2.53%
2011 107.3 +7.3%
2012 113.3 +5.59%
2013 121.8 +7.5%
2014 128.4 +5.4%
2015 128 -0.3%
2016 127.8 -0.15%

This table uses a current British Gas electricity tariff as its base and the average usage of 3,100 kWh. Based on our research, we can see that we are currently paying an average of almost £300 more per year for our electricity than we were in 2006.

Here we can see that there has been quite a profound increase in price, resulting in a 62.6% increase between 2006-2016, the largest being a 15.5% increase between 2007-2008. Taking this information and basing the percentage increases on one of the current average tariffs on the market today, we can estimate the yearly average prices. This is illustrated through the graph below:

How much have gas prices changed? We keep a close eye on energy prices across the energy market. You can learn more about where gas prices stand here or speak with one of our energy experts on 01704 325069 to find the best energy tariffs in your area.


Compare Electricity Tariffs - Find The Best UK Energy Supplier

The UK has hundreds of electricity suppliers offering a staggering amount of variable and fixed rate tariffs to choose from. With all these home energy options, it can be a bit overwhelming to pick just one. By knowing what to look for in terms of unit rate, standing charges, billing options, exit fees and customer service, you will have the power to choose.

The electricity markets have been open since 1990 when Margaret Thatcher’s government privatised the local electricity boards. The deregulation of the UK electricity supply has lead to much more flexibility and choice in terms of energy prices and services.

cup of tea with light bulb

The problem is, who do we choose? There’s so much choice and there is no clear sign towards whom any of us should choose! We understand, which is why we’re here to give you a hand and work through your options. We all have our preferred choice of electricity supplier for a variety of reasons.


What Are Your Options?

The group of the largest six energy suppliers is collectively named the ‘Big Six’, consisting of EDF Energy, British Gas, Npower, Eon, Scottish Power and SSE. They’re named as such because they dominate the gas and electricity markets, by far, in terms of customers, profits and overall business. They currently hold a collective market share of around 84%, however this is changing quite drastically.

a document with a checkmark is next to a lightbulb

In early 2011, the Big Six were at near complete domination of the energy markets. This has changed primarily due to the progression of a handful of serious contenders who are smaller electricity providers, namely First Utility, Utility Warehouse, Ovo Energy, Co-operative Energy and a few more, who have clawed back a 15% portion of the market share. This has improved market conditions for consumers in a number of ways:

  1. Now that there is more competition, the big six are having to be much more competitive with their electricity prices.
  2. Because of the smaller structure of the independent electricity companies, their customer service quality has been much higher than those of the Big Six, which has encouraged enough people to switch energy company.
  3. The Big Six can no longer assume they will always have masses of custom which means they’re having to get creative and attempt to reinvent their previously untouchable corporate image and reputation.

You can find out more about energy suppliers in Great Britain by clicking on the below link.

Energy suppliers in the UK

Green & Low Carbon Electricity

a home with solar panels

As more and more pressure is being put on our straining fossil fuel reserves, renewable energy is becoming a hot topic. Producing energy in such a way that can be repeated sustainably without damaging our environment or using fossil fuel reserves is, and should be, a main priority for all of us worldwide.

Most UK energy suppliers now offer a partly renewable supply in a large majority of their offers; however, some are offering tariffs that will supply your home with 100% renewable electricity.

EDF Energy are the largest producer of electricity in the nation, accounting for around a fifth of all electricity in the UK. They are also the largest producer of low carbon electricity in the country. Their electricity mix is not 100% renewable, but their carbon density is considerably less than the UK average. As you can see in the image below their main generation source is nuclear, which is considered by many to arguably be a renewable method on some levels.

Source: EDF EnergyLow carbon electricity EDF Energy

The debate against nuclear energy is also quite a hot topic; however, the facts are these: carbon emissions are extremely low compared to fossil fuels and the main reason for not being classified as totally ‘renewable’ is that uranium deposits are finite, meaning their resource is not unlimited, not for the damage it does to the environment, which is very low. However you must also take the danger posed by nuclear waste and its costly disposal into account.

a composting bin with a recycling symbol

As mentioned previously, there are also some energy providers who offer 100% renewable (wind, solar, biomass, hydro, geothermal) tariffs. These suppliers include Ovo Energy and Co-operative Energy. The common wisdom is that they cost quite a bit more than the average tariff, so if green energy is not your priority, you may wish to switch electricity to one of the big six like EDF Energy, however over the past few years green suppliers have started to offer aggressively competitive energy pricing.

One fast-growing UK based company called Tonik Energy is beating much bigger companies at their own game. Even though they only use renewable sources, they remain very competitive with their electricity rates. They are managing to provide strong customer service while keeping your electricity bill low. If you want a secure alternative to the bigger providers, you should definitely look at Tonik Energy closely.

Learn more about renewable energy here

How electricity tariffs work

Your electricity supplier buys up electricity on the wholesale energy market which is like a stock exchange for electricity and gas with prices going up and down constantly, based on supply and demand.

Hydroelectric dam graphic

Electricity has to be used as soon as it is produced in power stations. The UK national grid currently cannot store large amounts of electricity for later use. If too much is generated it will destroy power lines and transformers, too little and we get brownouts and rolling blackouts. Everyone gets the same electricity supply no matter what company you are with or even if you are on a green energy tariff.

Electricity providers are the intermediaries between the wholesale energy market and the household energy user. They buy from the former and bill the latter for the energy supply, making money in the process.

How electricity tariffs are calculated

Your electricity tariff is calculated using two figures: the unit rate and the standing charge.

  • The unit rate is the price per unit of electricity, measured in kilowatt hours (kWh). The more units of electricity your home uses, the higher your power bill is.
  • The standing charge is a daily fee that covers the supply costs of getting energy to your home. This amount does not change with how much electricity you use and is charged every day even if you are not using any power.

The kind of tariff you sign up for can have an impact on your electricity bill over time.

  • Fixed Rate Tariff: also just called fixed tariff, do not mean that you pay a fixed price no matter the amount of electricity you use. It means that for a 12 or 24 month period of time, the unit rate and standing charge that make up your electric bill, will not change.
  • Variable Rate Tariff: this tariff follows the changes in electricity prices when they go down but also when they spike. So the unit rate and standing charge can change at any time, although the energy company is supposed to notify customers a month ahead before increasing prices significantly.
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Economy 7 - what is it? how does it work?

Economy 7 Off Peak Hours

Economy 7 is a differential tariff, which means that you have two unit rates depending on the time of day you are using your electricity. This kind of tariff is beneficial to those who don’t mind using their high output appliances, such as washing machines and dishwashers, in their off-peak time allocation, which is usually through the night.

In order to tell the two kinds of electricity usage apart, Economy 7 requires special metering, such as what smart meters can do, to get the right electricity rates at the right time. You can find Economy 7 tariffs with many suppliers, both with prepayment and debit payment options.

If you don’t already have a compatible meter fitted you’ll need to give your energy supplier a call to fit your home with a new, second meter, or alternatively reconfiguring your smart meter to work with this special tariff schedule. You can find out more about Economy 7 by clicking the link below:

Learn more about Economy 7 here

Customer Service

One of the things you should bear in mind when you are choosing your electricity provider is whether their customer service is up to standard. One thing you do not want is to be going around in circles, pulling your hair out over horrible customer service.

Customer service representative graphic

That said, however, because of the large customer numbers and corporate structure of the Big Six, you have to give them a bit of leeway in terms of review figures. This is not to say that you should go with a supplier that has a 1% customer satisfaction rating, but somebody like British Gas, for example, the most popular supplier in the UK, has a 4.6/10 rating on Trustpilot, which is acceptable for some.

You’ll notice that the independent companies will generally have higher customer service ratings. This is because they need to pull out all the stops in terms of customer service to be able to get and maintain their growing customer base.

Energy company customer service reviews (TrustPilot)
Supplier Overall rating Amount of people that gave 5* Amount of people that gave 1*
EDF Energy logo
4.2/10
47%
26.4%
British Gas logo
4.6/10
47.6%
26.3%
Npower logo
0.6/10
2.2%
92.6%
Eon logo
1/10
3.9%
85.4%
Scottish Power logo
0.3/10
1%
96%
SSE logo
1.7/10
12.5%
75.7%
First Utility logo
7.3/10
46.1%
10.9%
Ovo Energy logo
8.9/10
73.3%
4.2%
Co-operative Energy logo
4.6/10
19.2%
44.4%
Utility Warehouse logo
7.8/10
66.2%
13.7%
Utilita logo
1.5/10
8.5%
85.9%
Extra Energy logo
1.6/10
6.6%
86.3%
Flow Energy logo
8.4/10
67.6%
6.8%

The reason why customer service is so important in the UK electricity market is that it can affect your energy bill. If a company makes a mistake with an energy consumption estimate but they are not available to talk to you on the phone when you are ready with your actual meter reading, then you will end up overpaying for your electric.

Likewise, if you move house and your supplier gets your property details wrong it could mean headaches when it comes to things like direct debits, even though a power outage is out of the question, billing mistakes are still a massive hassle.

Our Recommended Suppliers

EDF Energy

If you are looking for a Big Six company, it’s pretty much impossible to find a company that is the unanimous choice amongst the whole population, but what we can do is choose a company that has relatively good customer service ratings and fairly low prices compared to its other big sibling energy companies.

This company could be EDF Energy. They are in the big six for a reason, not only as a huge player in the UK, but also as the largest supplier in France too. You will save some money by opting for an EDF Energy tariff, but there are smaller suppliers such as Tonik Energy with consistently better prices and 100% renewable electricity.

To get a quick and simple comparison with Selectra your best option is to give us a call or use our online comparison tool.

Tonik Energy logo, our choice of supplier

Tonik Energy has been consistently impressing us for over a year. They are definitely leading the pack when it comes to small suppliers. This Birmingham-based company is focused on keeping their electricity price competitive, employing renewable energy as well as helping you reduce your electric bill and consumption.

Tonik Energy isn't just using British green energy for environmental reasons, it's a crucial part of their ability to keep prices low and react rapidly to an ever-changing energy market in the future. Another advantage is that there are no exit fees which is something that not every energy company offers.

Send Us Your Bill

Office desk working on personalised bill

Ok, so it’s time to let the savings start rolling in. We’re thrilled you’ve chosen us to help you choose the perfect energy tariff. You can speak with us without having to wait and we will let you know what the best electricity deal is for you in a matter of minutes.

We’ll make a personalised tariff offer which you can accept if you wish, or listen to the other tariffs we may be able to give you. If you’d like more information on how the switching process works here at Selectra, click the below link to find out more.

How does it work?