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How energy tariffs work: we make it simple

Mar 26, 2019 - 4min read

At Tonik, we’re all about making life easier for our members. We know that energy can be confusing – especially when there are more than 60 suppliers offering hundreds of tariffs between them! These tariffs can be fixed or variable, some may have a dual fuel discount, and some might have exit fees, while others you are free to leave at any time.

So we want to make it simple! To help you out, we’re sharing the answers to some of our most frequently asked questions...

How do tariffs work?
All tariffs are made up of two components called a standing charge and a unit rate.

A standing charge is the daily rate charged in pence per day, paid regardless of how much energy you actually use. This charge is also used to cover costs like meter maintenance.

A unit rate is charged in pence per kWh; this is the amount you pay for every unit of gas or electricity that your home uses.

Most households use a tariff with only one unit rate, although some households have an ‘Economy 7’ or ‘day/night’ electricity meter. This means their tariff uses two unit rates; one for electricity used during the day, and a different rate for electricity used at night. You can tell if yours is an Economy 7 or day/night meter if it has two sets of readings on it.

We’ve written two handy guides to help you read your meter or read your smart meter.

What’s the difference between fixed and variable tariffs?
Fixed tariffs guarantee that your unit rate and standing charge will stay exactly the same for a fixed period of time of usually one or two years. However, your bills will be calculated on the amount of energy you actually use, so if this differs to the figures you gave when you got your quote, then your bills will be different too.

Some people like fixed tariffs because they can give you a good idea of what monthly payments to expect which is helpful from a household budgeting perspective, but they also protect you from any increases in the wholesale costs of energy over the course of your tariff.

You may have to pay exit fees on some fixed tariffs, if you want to change supplier more than 42 days before that tariff is due to end. If you switch suppliers within the 42 day “renewal period”, you should not be charged any exit fees.

Variable tariffs do not guarantee that your unit rate and standing charge will stay the same over a fixed period of time - so your rates could go up or down after you have signed up, though your energy company has to tell you if they are changing the price of your energy. These types of tariffs are not fixed in terms of a time period either, so you can stay on them for as long as you like, and you won’t be charged any exit fees if you leave.

Most energy companies have what is called a 'default tariff' which is the tariff people will automatically roll onto when they come to the end of their fixed tariff and have not chosen a new one. These tariffs are usually variable and tend to be more expensive than their fixed tariffs.

Some people like variable tariffs for the flexibility of not having to pay any exit fees, so they can switch if a better deal comes along.

Tonik offers the best of both worlds: we have some of the most competitive 100% renewable fixed tariffs on the market, and we don’t charge exit fees!

What is a dual fuel discount?
Some energy companies offer a dual fuel discount if you get both your gas and electricity from them. There is a fixed annual discount that is applied to your energy bill.

How are my bills calculated?
Your energy bills are calculated by measuring how much energy you have used, and this is done in kilowatt hours (kWh) for both gas and electricity.

However, most energy companies will require you to pay for your energy with a fixed monthly amount by direct debit. We calculate how much your energy bill will be over the next 12 months by looking at how much gas and electricity you are estimated to use during that time - your direct debit will then be set at one twelfth of this amount.

Your direct debit amount is not a limit on what you pay each month; it could be increased (if you have used more than has been estimated) or reduced (if you are using less).

What is the energy price cap?
Ofgem (the government regulator for gas and electricity) introduced a ‘default tariff cap’ for standard variable and default tariffs, and this came into effect on the 1st January 2019.

This price cap has been put in place to ensure that customers pay a fair price for their energy; any price changes will reflect genuine changes in the cost to supply energy.

The price cap sets a limit on the unit rate and standing charge that suppliers can charge customers on variable tariffs, but it does not set a limit on customer bills – in other words, if you use more gas and electricity, your bills will still increase!

For more information on Ofgem’s default tariff cap please visit their website here.

So there you have it, hopefully we’ve managed to take a bit of the mystery out of energy! Don’t forget, you can manage your Tonik Energy account through your online Tonik Space – where you can submit meter readings, see your usage, statements and your live balance. You can also refer friends & family here, and renew your tariff with us.

If you have any other questions about energy or your Tonik account, you’ll find more help and advice here. You can also call us Monday to Friday, between 8:00am and 5:00pm on 0333 344 2686, email us on hello@tonikenergy.com or find us on Twitter, Facebook and Instagram.

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