In this article

1. Fixed vs variable rate tariffs

2. What is a variable rate energy tariff

3. What are wholesale energy prices?

4. What are the benefits of variable energy tariffs?

5. Are there any disadvantages of variable tariffs?

6. Variable energy tariff FAQs

7. Are variable energy tariffs better than fixed tariffs?

8. What energy tariffs does Igloo offer?


Searching for the best energy tariff? With so many different energy suppliers out there offering all sorts of energy tariffs, the task can seem a little daunting - not to mention time-consuming. Thankfully, we’re here to make it simple so you don’t waste your precious time on the wrong deals.


Fixed vs variable rate tariffs

The first thing to know is that generally speaking, most energy tariffs fall into one of two camps - fixed or variable. While fixed tariffs have their place on the market, variable rate tariffs are becoming increasingly popular, thanks to their extensive range of benefits. Read on to find out more about variable rate tariffs and how they work.


What is a variable rate energy tariff?

With variable rate energy tariffs, the price you pay per unit of energy will vary, for both your gas and electricity and it is standard practice for all energy suppliers to bill in kilowatt hours (kWh). But it’s not decided at random. The cost per unit of energy is determined by the wholesale energy price. If the wholesale price falls, your energy supplier will likely pass on the savings to you. If it increases, you’ll likely have to pay a little more for your energy.

On a variable energy tariff, your supplier has the right to change the unit (kWh) price of your gas and electricity at their discretion. However, they are governed by the energy price cap, set by Ofgem. If your energy supplier is going to increase the price of energy, they are required to give you 30 days notice.


What are wholesale energy prices?

We’ll let you into a little secret - most energy suppliers don’t create energy. They buy gas and electricity on the trading market, directly from the source, at a wholesale (or commodity) price.

This wholesale price makes up at least 50% of your final bill and, therefore, makes a big difference in the amount you’ll pay for your gas and electricity.

Just like the stock market, the wholesale price of energy fluctuates daily and can be influenced by a range of factors including:

  • Supply and demand

  • Price of gas, oil, carbon & coal

  • Worldwide political events

  • Currency movements

  • Weather

  • Shipping costs


What are the benefits of variable energy tariffs?

Now you know what a variable energy tariff is, it’s time to find out how you can benefit from it.

Save on your energy bills

Consumers on variable rate tariffs benefit from reductions in wholesale energy prices. We know what you’re thinking - are energy prices ever likely to fall? And the answer is yes. As we mentioned before, they’re largely determined by external factors. For example, during the first Covid lockdown of 2020, energy prices reduced significantly and consumers on a variable tariff made great cost savings.

No contracts

Unlike with fixed energy tariffs, you won’t be tied into a lengthy contract. Variable energy tariffs offer greater flexibility so you can leave your supplier at any time for a better deal.

If you are happy with your energy supplier but think energy prices are on the rise, you always have the option to switch to a fixed plan for a set energy price. Just remember, you’ll be tied into a contract thereafter.

No exit fees

No contract means no exit fees. With variable energy tariffs you can switch energy suppliers or energy tariffs whenever you like, and you won’t be charged for it.

Consumers on fixed energy tariffs will usually be charged an exit fee if they cancel their plan before the contract period is over. Contract periods typically last for between 1-2 years. 


Are there any disadvantages of variable tariffs?

As you can see, variable energy tariffs offer a lot of benefits to the customer but it’s worth double-checking it’s the right plan for you.

Remember:

  • If wholesale energy prices rise, you’ll likely notice an increase in your energy bills. Choose a supplier that is committed to keeping costs as competitive and fair as possible.

  • It might be difficult to predict your future energy bills, as you don’t know how the wholesale market will fare. But remember, your supplier will notify you 30 days in advance of any price increases.


Variable energy tariff FAQs

If you’re considering switching to a variable energy tariff, you’re bound to have questions. To make life easier, we’ve shared some of the most frequently asked, with answers from our experts…

I’m on a variable energy tariff and pay monthly by Direct Debit - when will my payments change?

As a variable energy tariff customer, the cost of a unit of gas or electricity will go up and down. If energy prices go up, your supplier is likely to increase the rate you pay. However, if you’ve already built up a reasonable amount of credit, your monthly Direct Debit payment may not increase immediately.

If energy prices fall but you’ve been paying slightly less each month for the amount of energy you’re using, you may need to continue to pay the same amount until you catch up.

If you’re concerned about changes to your monthly payments, speak to your energy supplier and make sure you’re paying enough to cover the energy you’re using each month.

Will variable energy tariff customers always benefit from reduced wholesale prices?

It depends on your energy supplier. Not all energy suppliers willingly share changes to the wholesale energy market or pass on cost savings to their customers. 

Remember, the wholesale energy price only makes up part of your final energy bill. It also includes operating costs, delivery costs, taxes, the cost of meeting the government’s renewable standards and finally, your supplier’s profit

Choose a trusted and transparent energy supplier like Igloo and rest easy knowing you’ll always get our best price. We’re all for keeping energy simple and fair, with a variable rate tariff that everyone can benefit from.

What happens if I want to change energy suppliers?

The good news is that with variable rate tariffs, there aren’t any contracts or exit fees. If you spot a great energy deal and want to switch energy suppliers, you can go ahead and do it whenever you like.

Can I switch from a fixed rate contract to a variable rate tariff?

It depends on how long you are tied into your fixed rate energy contract. Keep in mind that if you end the contract early, you’ll likely have to pay an exit fee of between £30-60. However, note that Ofgem state that no exit fees should be charged if your fixed energy tariff has fewer than 49 days left. So if you are coming to the end of your fixed rate contract, it’s a good time to weigh up your options.

Research different suppliers and compare energy tariffs to get the best price. It’s also worth looking at wholesale energy prices. If you think they’re going to fall, consider the savings you could make by switching to a variable rate energy tariff.

Be aware that if you don’t decide by the end of your fixed rate contract, your energy supplier may put you on their standard variable rate plan automatically. This might not always be the most cost-effective plan available, so it’s worth spending a few minutes seeing if you can save some money.

What’s the difference between variable and standard variable tariffs?

As we mentioned above, if your fixed term tariff contract ends and you’ve not shopped around for a new deal, there’s a chance your energy supplier will put you on their standard variable tariff. These basic or ‘default’ tariffs are typically more expensive than other variable and fixed tariffs.

Standard variable ‘default’ tariffs and a lack of transparency from some energy providers is why Ofgem introduced the energy price cap. It’s there so that if you don’t shop around or perhaps have fewer tariff choices because of meter type, you won’t pay an unfair price for your energy.

Our variable tariff, the Igloo Pioneer is anything but “Standard” and offers all of our customers the best deal we can offer, without the need to change your tariff regularly. Giving you the peace of mind of being on our best deal. 

How can I use less energy and make cost savings?

Keep in mind that it’s not just your tariff that determines how much you pay for energy but how much energy you use. Reducing your energy usage can help you make cost savings in the long run, not to mention, benefit the environment. Here are a few ideas of how to use less energy:

  • Install energy-efficient light bulbs

  • Switch off appliances when not in use

  • Wash your clothes at a lower temperature

  • Use natural light

  • Air dry your clothes when possible

  • Buy energy-efficient appliances

  • Use smart thermostats to take control of your energy usage

  • Consider taking advantage of heating and home improvement grants to increase energy efficiency in the home. 


Are variable energy tariffs better than fixed tariffs?

The best energy tariff largely depends on your set of circumstances, for example, your lifestyle and budget, where you live, and how you use energy. Read our energy tariffs guide to help you choose the right one.

Here’s a quick summary of the pros and cons of variable energy tariffs and fixed tariffs.

Variable Energy Tariff Pros

  • Pay less for your energy if the wholesale price falls

  • No contracts or exit fees

  • Switch tariffs whenever you like for a better deal

Variable Energy Tariff Cons

  • Risk paying more if the wholesale price of energy increases

Fixed Energy Tariff Pros

  • Pay a set price throughout your contract for easy budgeting

  • If wholesale prices increase, your bills will stay the same

Fixed Energy Tariff Cons

  • Tied into a contract

  • Exit fee (approx £30) for leaving your contract early

  • No cost savings if wholesale energy prices fall

It all comes down to what’s most important to you. If it’s greater flexibility, no contracts and the chance to make savings on your energy bills, variable energy tariffs are the way to go.


What energy tariffs does Igloo offer?

Having a choice of energy tariffs is great but it can also be incredibly overwhelming. That’s why we’ve put our efforts into providing the single best variable energy tariff Igloo Pioneer, and you can join us if you are a dual fuel, or electricity only customer. 

We make buying energy easy with a simple and straightforward dual fuel energy tariff. No teaser rates. No lengthy contracts. No exit fees. Just the best possible energy rate at all times. And because the tariff is variable, we are often able to reduce our energy unit prices.

Unlike most other energy supply companies, we want to help our customers use less energy. Yes, you heard us right!  We’re here to help you make your homes smarter with recommended products and solutions that will save you money.

Interested in finding out more? Chat to our experts at Igloo and get a personalised quote.