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Fixed vs Variable

Industry
Posted by PFP Energy

The energy industry can be a real headache sometimes. With so many myths and complex terms, it often feels easier to just avoid the hassle by putting off choosing a tariff. Fixed and variable tariffs can be a cause of confusion but if you get to grips with them you can avoid overpaying for your energy, so we’re here to help clear things up. Our usual key word section can be found at the end (we like keeping it simple).

Tariffs

Let’s start at the real basics. Energy tariffs are essentially a contract between the customer and supplier, much like a mobile phone contract, used to sell electricity and gas. They always have a standing charge, which is a daily charge that goes towards grid and meter maintenance, and a unit rate, which is the amount you pay per kWh of energy you use. All tariffs will either be fixed or variable.

Variable Tariffs

Energy wholesale prices fluctuate a lot, especially by season. Variable tariffs reflect this – suppliers can move both the standing charge and unit rate of a variable tariff up or down depending on the market. However, you will be notified around 30 days before any change to pricing and as variable tariffs have no exit fees attached, you can switch to a different plan if you don’t like the change. If your renewal is coming up, why not get a quick quote which lets you choose the best option for you?

Fixed Tariffs

If you are uncertain about monitoring fluctuating energy prices, you may prefer to opt for a fixed tariff. These generally last a period of 12 months but can last longer, with some extending up to 36 months. Most fixed tariffs have exit fees since your supplier will already have bought the energy for you and they need to be able to cover the cost of this if you leave early. However, this isn’t a rule as some suppliers offer no exit fees on fixed tariffs (our tariffs that have a satisfaction guarantee provide this for fixed customers).

Variable or Fixed?

In general, variable tariffs are more expensive than fixed tariffs. If you are on a fixed tariff, at the end of your fixed term you will be moved to your supplier’s default variable tariff (rates on this tariff will be limited by the price cap). There will be a 49-day renewal window before the end of your fixed tariff that allows you leave without paying exit fees if you want to move to another fixed. If you’re a PFP customer you’ll get reminders before your renewal date, alongside a portal link to compare us with other suppliers on the market, so you’ll always be offered the best options.

Key Words

Exit fees – an amount paid per fuel (gas/electric) for leaving earlier than 49 days before your tariff ends (only applies to tariffs with exit fees). Often this is £30 per fuel but it can vary depending on the supplier. Exit fees exist to cover the cost of the energy that has been purchased for the length of the contract.

Wholesale prices – the price suppliers pay for energy. This makes up a proportion of what consumers pay, since suppliers also need to accommodate for distribution and operational costs.

Price cap – the maximum standing charge and unit rate a supplier can charge on a standard variable tariff (a tariff you are moved on to automatically when your fixed tariff ends if you do nothing). This cap is set by Ofgem, the energy regulator, and reflects wholesale energy prices.

For more key words find our handy jargon explainer here

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