Variable Energy Tariffs: Do We Recommend Them?

When thinking about your utilities and energy tariffs for your gas and electricity, it’s important to find the best deals possible. With gas and electricity in particular, switching can never lead to a dip in the quality or power of your utilities in your home. The only differences you may notice are changes in customer service quality, but we don’t mean to say that cheaper = bad customer service, in actual fact, the opposite is true! A cheaper energy deal rarely leads to poor customer service either, meaning there’s no reason not to frequently shop around, compare tariffs and switch.

Last update: April 2022

As you may have heard on the news, the UK energy market is currently under an immense amount of stress as a result of a global gas shortage driving up costs and putting several energy suppliers out of business. To learn more about this and stay updated on a daily basis you can read our page on the UK energy crisis.

The latest annual Which? Energy Survey asked 8,000 UK bill payers what they thought of their energy providers, and those from ‘the big six’ frequently ranked poorly – and have done for the last few years – particularly when it comes to customer service.

What is a variable energy tariff?

A variable energy tariff means that the cost of your energy (gas, electricity or both!) will vary, based on the market rate of energy at the time. This doesn’t necessarily mean that your costs will increase and decrease with your usage – as with water bills, for example – but at the discretion of your energy supplier(s), they will often pass on any savings or additional expenses of generating the oil to you, their customers.

This is in direct contrast to a fixed energy tariff, where you pay a fixed cost every month for your energy consumption, and it won’t decrease or increase throughout your contract length. For fixed tariffs, this is usually anywhere between one and three years.

Unlike a fixed tariff, variable tariffs don’t have fixed terms, contracts or exit fees, so you’re free to switch energy suppliers as soon as a better deal comes along!

variable energy tarriffs

How often do variable energy rates change?

Variable energy rates don’t go up and down at random, they are based on global wholesale energy prices. Don’t panic though: changes won’t ever immediately impact your rate. So, if energy prices doubled overnight due to market volatility and global issues, you’re extremely unlikely to have your next bill impacted.

Remember that whichever UK energy supplier you pick, they legally have to give you ‘reasonable notice’ before changing your prices. Ofgem (the UK energy regulator) has made it so energy suppliers have to give 30 days notice (at least) in advance of changes taking place, which allows customers to switch to a different tariff or a new provider if needed, before the changes take effect.

Similarly, this also means that your price won’t automatically go down immediately if the wholesale costs of energy drop.

The volatility of gas and electricity prices

If you’re wondering how likely it is that your prices will increase or decrease soon on a variable tariff, Ofgem has tracked the volatility of electricity prices since 1st January 2003.

Gas and electricity prices and oil prices are very closely correlated, and when oil prices jump up, the cost of buying and supplying oil does too. Energy providers have to pay these increased costs, and significant price hikes are usually passed on in their bills. So, for those on variable tariffs, you may see an increase in your energy bills when the price of oil is high.

COVID-19

More than ever, our team of experts remain on deck to help you make savings on your energy. We understand how deeply the lives of many are affected by these trying times and we want to support you the best we can. More on your energy supply during COVID-19 in our article.

For energy in general, there have been some major peaks in oil prices winter 2016/2017 as well as in March 2018 with prices reaching record-highs due to issues with the supply chain, causing demand and supply issues and driving the price up.

In April and May 2020, there was a peak akin to one we saw in 2008, which is usually driven by a recession or global issue. 2020, of course, saw the lockdown through a whole host of industries upside-down, and the market price of oil increased during this time as a result.

With oil prices now stable since Q3 2020, forecasts suggest that oil prices will continue to increase in 2021 due to the gradual return to ‘normal’ and increase in demand. This, of course, affects the prices that energy suppliers must pay, and will generally be passed on in the form of price hikes to UK households on variable energy tariffs.

Do suppliers always pass on price cuts to their variable rate customers?

They don’t have to. Don’t forget that your unit rates and standing charges aren’t the be-all and end-all. Your bills are made up of various different factors including the cost of supplying energy to your home and region. So global oil prices dipping doesn’t always correlate with those on variable tariffs receiving a smaller bill.

Interestingly, data from the Clifford Talbot Partnership shows that over the last 15 years show that there is a strong correlation between the cost of oil per barrel and the costs of gas p/kWH and electricity p/kWh. This is shown particularly in the big peak of 2008, which coincided with the recession, where the price of oil increased quickly. Interestingly, the coronavirus pandemic didn’t have as extreme of an effect, and one of the reasons is that the demand for energy actually dropped considerably during this time, as well as the ability to generate energy.

Another period of note is in 2014 when the price per barrel of oil dropped in a very quick period of time. It dropped from around 3$ per barrel to almost 1.5$ per barrel, yet the kWh cost barely changed to reflect this. Although the price of oil is a factor when energy suppliers calculate their costs, it’s not the be-all and end-all, and often they will still have the costs of maintenance, supplying and customer services to pay for even if the cost of oil does drop. This is why significant drops in oil prices don’t necessarily create a similarly dramatic drop in the cost of household energy.

 

variable energy tariffs

When will it impact my bill?

It’s impossible to say, as energy suppliers can generally differentiate between a temporary drop or price increase and a longer-term change. However, take comfort in the fact that they have to tell you 30 days before making any changes to the costs you pay

Is now a good time to get a variable tariff?

Because of the global pandemic in 2020 and relatively sudden lockdowns, oil companies across the world had sudden issues with oil demand, with some major players reducing their outputs by up to 10%.

This might seem like the perfect time to switch to a variable energy tariff, but key forecasts suggest that prices are likely to increase in the next 12 months due to global recovery post-pandemic.

In very important news, while the current Ofgem price cap is in place until February 2021, they have said themselves that the price cap is likely to rise after that point. Which gives energy suppliers the freedom to charge more for their standard variable tariffs – while still remaining compliant under the new price cap.

What are the benefits of a variable rate energy tariff?

If you’re still unclear on the perks, here are some of the highlights of being on a variable rate energy tariff.

  • Your prices may drop if the market rate decreases, and you may beat the price paid by equivalent fixed rate tariffs
  • No exit fees or cancellations if you choose to switch, giving you the freedom to find a new provider if you’re notified that you’ll start paying more
  • Easy to switch energy providers

What are the disadvantages of a variable rate energy plan?

However, there are also some disadvantages of choosing an SVT.

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  • No long-term security in pricing or budgeting ability
  • No real protection against price hikes, unless you switch providers before they take effect
  • Quite often more expensive than the equivalent fixed rate tariffs, unless the market is at a low point.

Alt: You can compare variable energy tariffs online to find the best deal

Best variable energy tariffs on the market

While there is a well-known price discrepancy between variable tariffs and fixed tariffs – usually more expensive – you may find yourself put on a variable tariff at the end of your contract with your current supplier.
While variable tariffs offer flexibility on price when the market is low, they are often the default for energy suppliers, research shows that generally speaking, you’ll be better off on a fixed rate tariff. So be sure to take care when comparing.

As of December 2020, the cheapest variable-rate tariff comes from green. Closely followed by Igloo Energy, People’s Energy and Bulb.

Do some providers offer exclusively variable energy tariffs?While very rare, there are a handful of suppliers that do, and Bulb is one example of this. While many providers – particularly the Big Six – have an almost insurmountable range of tariffs and different prices paid by all of their customers, Bulb only has one tariff which is called Vari-Fair. This is the only tariff they offer, and it’s updated regularly to reflect the accurate costs of gas and electricity at that time.What happens at the end of a variable tariff contract?Variable tariffs aren’t contracts like with fixed rate tariffs, so you are free to leave your variable tariff whenever you would like to – or when you find a better deal!

Tariff Name Provider Electricity Or Gas Unit Rate

 

 

price/kWh

 

Standing Charge

 

 

price/kWh

 

Aspen green. Variable Electricity
20.00p
13.59p
Aspen green. Variable Gas
15.00p
2.692p
Pioneer Igloo Energy Variable Electricity
22.64p
14.45p
Pioneer Igloo Energy Variable Gas
26.08p
2.44p
The People’s Tariff People’s Energy Variable Electricity
22.60
14.260p
The People’s Tariff People’s Energy Variable Gas
22.260
2.804p
Vari-Fair Bulb Variable Electricity
20.95p
15.780p
Vari-Fair Bulb Variable Gas
20.44
2.920p

Would you like to know more about different types of energy tariffs? Great! Here are some of the links to our latest articles

  1. Fixed energy tariffs
  2. Fixed or variable energy tariff
  3. Variable energy tariffs
  4. Dual-fuel
  5. Economy 7
  6. Economy 10
  7. Prepayment meter

To see which energy suppliers in the UK participate in variable tariffs, check out the list below:

  1. ESB Energy

Call us to switch your energy supplier for free!

0330 818 6225

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FAQ

Are fixed or variable energy tariffs better?

Ultimately, fixed and variable energy tariffs both have their pros and cons, and it depends on your personal circumstances as to which one is best for you. While fixed tariffs offer security on the price you’ll pay for a set period of time, variable tariffs may mean that you end up paying more than you need to for your energy should the cost of supplying energy increase.

What is Bulb Vari-Fair?

Bulb Vari-Fair is Bulb Energy’s only tariff. A variable tariff, Bulb says that their pricing accurately reflects the true cost of energy. That means that prices could go up or down depending on the market, but they have been - in the past - as quick to reduce payments as they are to increase them. However, you’re unlikely to be paying over the odds or treated differently to anyone else with Bulb, as everyone is charged the same amount, and there are no discounts for being a loyal customer. They will also pay up to £60 in exit fees should you leave your current supplier and switch to them.

Are energy prices likely to rise in 2021?

Now, due to the recovery, vaccine rollouts and increase in people returning to work and increased demand for manufacturing and travel - for example - forecasts suggest that the price of oil is likely to increase further in 2021. And oil companies such as OPEC have committed to returning their production of oil to pre-pandemic levels.

In short, prices are likely to rise for energy suppliers and customers alike in 2021, making variable tariffs a bit of a risk right now.

Updated on 24 Jan, 2022

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Alex

Energy Specialist & Copywriter