Understanding Your Electricity Tariff

Understanding Your Electricity Tariff

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Two principal types of tariffs are offered by energy utilities. They come in the form of fixed and variable tariffs. Each of these tariff types relates to the unit rate per kWh. Therefore, you will pay a fixed or variable rate for your electric usage. Variable tariffs adjust in accordance to the wholesale price of electricity. Therefore, your bill may be higher or lower, depending on the wholesale price.

Fixed Tariff Amounts

However, if you pay a fixed tariff, the amount stays the same, despite having a higher rate than the current variable tariff. Nevertheless, you can feel safe in knowing that your billing amount will always be the same, and that you will not have to deal with any spikes in price.

The unit rate on your billing statement references the amount of kWh of electricity, and the cost. Again, this rate fluctuates if you have a variable tariff, whilst it stays the same when you choose a fixed rate. The kWh, or kilowatt hour, is a measurement of energy. It shows the amount of electricity you have used. For example, if you used a 10000W appliance for one hour, it would use one kilowatt unit.

Standing Charges

A standing charge on an energy bill is a fixed price amount that is added to cover such utility expenses as the following:

  • Keeping your home linked to your Distribution Network Operator
  • Maintenance
  • Performing metre readings
  • Government contributions, such as assisting vulnerable homes

In today’s current marketplace, energy regulators try to create a fairer consumer market by implementing a standing charge. A standing charge, as noted on such sites such as Selectra UK, make a cost structure much easier to understand. The standing charge is normally displayed on your quote as “per day” in a pence number. However, companies are allowed to set the charge to £0, which means that you do not have to pay a standing charge on some tariffs.

Whilst the £0, figure sounds good, in actuality is usually is not. Typically, if a company offers an £0 standing charge, the unit rate is charged at a much higher amount than the industry average. This type of practice then reverts back to a non-transparent costing system – one that the Office of Gas and Electricity Markets (Ofgem) has tried to eliminate.

Contract Lengths for Fixed Tariffs

A contract length only applies to energy bills that feature fixed-term tariffs. Therefore, the contract duration represents the amount of time you wish to freeze an established price. For instance, you may choose a tariff that features a unit rate of 12.81 per kWh, which is frozen until 2018.

Technically, you do not have to fully meet the contract terms until the termination date. However, if you decide to change tariffs or providers before the term’s end, you must pay a predetermined exit fee. This exit fee differs among companies.

VAT

All the discounts, costs, and incentives on an electricity bill are subject to a 5% standard VAT rate. So, you can expect to pay this amount on an ongoing basis.

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