Energy FAQs – your questions answered - Gas and electricity - News - Moneyfacts


Energy FAQs – your questions answered

Energy FAQs – your questions answered

Category: Gas and electricity

Updated: 15/10/2014
First Published: 15/10/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Does the world of energy confuse you? All those price hikes, tariffs, new suppliers and contracts can make it difficult to know where to start if you're trying to cut your bills, so we're here to help. We've answered some of the key energy-related questions you may have to help simplify the minefield.

What types of tariffs are there?

There are several types of tariff you can choose from these days, and it isn't always as simple as standard or fixed. Here are a few you need to be aware of:

  • Fixed tariff. This is a tariff that offers a guaranteed standing charge and set rates for a limited period of time, usually paid by direct debit in fixed amounts. It can be a great way to budget and it'll protect you against any price rises, but bear in mind that the set rate is per unit of energy – so if you use more, your bills will still go up.
  • Online tariff. An online (or internet-only) tariff, as the name suggests, is applied for and operated online. It's a self-managed account where you'll receive bills in electronic form and will be asked to send meter readings, and because of this, these tariffs typically offer cheaper prices.
  • Green/environmental tariff. Green tariffs are becoming increasingly popular, and more suppliers are offering them to their customers. Typically, the supplier will match your energy usage with an equivalent amount from renewable sources, and/or it will contribute towards environmental schemes on your behalf (usually through a portion of your bill being invested in environmental projects).
  • Economy 7 tariff. If you've got an Economy 7 meter, which tracks the energy you use at night and day, then you'll usually want an Economy 7 tariff. You'll pay a different price for your energy at different times of day – which is why it's also known as a "time of use" tariff – with the energy you use for seven hours at night being cheaper than daytime use (similar to a peak/off-peak arrangement). However, it's generally only suitable if you use over 40% of your energy at night, so it may not be ideal for all lifestyles. There are ways it can work, of course – if you work in a shift pattern and will regularly be up at night, or set your washing machine/dishwasher to start overnight, it could work out cheaper. It's all about your circumstances.
  • Standard tariff. A standard tariff is generally the default and will charge variable rates depending on market fluctuations. You're not tied into a contract, but nor will you be getting the cheapest prices, as standard tariffs are often far more costly than fixed alternatives.
  • A few others… Economy 10 tariffs (similar to Economy 7), pre-payment tariffs (for those with a pre-payment meter, therefore not technically a tariff as such), and feed-in tariffs (where you're effectively paid to generate some of your own electricity). Do your research if the usual options don't suit your needs or lifestyle.

What does dual fuel mean?

Dual fuel means that you're getting both your gas and electricity supplied by a single company. Opting for dual fuel contracts will often mean you get discounts when compared with buying individual tariffs, and for many people the combination of price and convenience (as you'll only need to deal with one supplier rather than two) can offer the ideal choice. You can, of course, opt for individual tariffs should you wish, and can switch from dual fuel to separate contracts at a later date, provided you give the required notice period to your supplier.

Why do different payment methods have different pricing arrangements?

The general answer is that the amount of administration involved makes all the difference. It's more expensive for a supplier to administer certain payment methods than others, so if you're paying by direct debit (for example), you'll usually pay less than if you paid your bill quarterly or pre-paid. Research from Ofgem has found that dual fuel customers who use prepayment meters are charged, on average, £80 more per year than those who pay by direct debit, so it could be time to consider your options.

What makes up my energy bill?

A large part of the typical energy bill will be made up of wholesale costs, followed by network costs and supplier operating costs. Here's Ofgem's expected breakdown of the typical dual fuel bill over the next year:

  • Wholesale costs: 45% (£594) of the average bill
  • Network costs: 23% (£302)
  • Supplier operating costs: 13% (£174)
  • Pre-tax margin (profit): 8% (£102)
  • Environmental and social obligation costs: 6% (£86)
  • VAT: 5% (£63)

Can I switch supplier if I'm still in a contract?

Perhaps, but it all comes down to your specific terms and conditions. Speak to your supplier to double-check. But, remember that if you're moving house you won't be able to take the contract with you, so call the suppliers of both homes to find out what to do next.

Will I be charged an exit fee if I want to leave my contract?

Many fixed tariffs charge early exit fees, typically up to £30, however industry regulator Ofgem has devised a caveat. They've decreed that customers on tariffs that are coming up to expiry can shop around without being penalised. Under the rules, once you've been notified that your fixed tariff is coming to an end – your supplier will typically notify you 42 to 49 days in advance – you can switch without being charged an exit fee. Also, if your energy company is raising prices, you'll be able to switch penalty-free.

How easy is it to switch suppliers?

Ideally, very. Once you've found the deal you want just contact your new supplier and they'll arrange everything for you, but you'll usually need to give a certain amount of notice (typically 28 days) before you can switch. Switches typically take between four and six weeks, but there shouldn't be any interruption to your service. Just make sure your old supplier takes a final meter reading so it can produce your final bill.

How can I get the best deals?

The only way to be confident that you're getting the best deal is to shop around. It's as simple as that! Use our handy price comparison tool to get started and see how much you could save by switching.

What's all the fuss about the Big Six?

The Big Six not only dominate the market, but they also tend to offer more expensive tariffs than their lesser-known counterparts. They've come under a lot of scrutiny in the last year or two, particularly over their profit margins and the fact they keep raising prices, and they don't often rank highly in terms of customer satisfaction, either. That's why a lot of people are considering switching to smaller, independent companies, with such firms often having tariffs that are a lot cheaper. Compare the options and decide for yourself.

What next?

Compare energy suppliers using our handy comparison tool

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Are you worried about paying for winter heating?

Autumn is here, temperatures are dropping, and the nation is battling with one key question – when should I put the heating on? For some it’ll be an easy answer, but others may have more to consider, with many wondering how they’ll pay their bill.

Energy switching up by 30%

Not happy with your current energy supplier? You’re not alone. Not only have recent figures highlighted a worrying level of complaints, but many customers could simply feel that they’re paying too much, and happily, they’re doing something about it!

Gap widens for energy complaints handling

The customer service a utility provider offers is important. Unfortunately, the latest report from Citizens Advice shows that complaints are still a big issue, with the worst performing energy supplier now 80 times worse than the best.