One of the most common complaints from energy customers is that they don’t understand their bills. Here at ista, fairness and transparency are at the heart of everything we do, which is why we have compiled this brief guide to heat tariffs.
What are tariffs?
Dictionaries define a tariff as a list of prices. In energy terms, the tariff is the rate at which your energy or heating is charged. For example, when you fill up your car with fuel, the price you pay at the pump is the tariff. Heat tariffs can be domestic or commercial and fixed or variable.
There are three main reasons for tariffs:
- To cover the cost of providing energy/heating
- To provide a fair and transparent pricing structure
- To educate consumers so they can make informed choices about their heat/energy usage.
Fair tariffs mean that people who use more pay more, and everyone contributes towards the fixed costs of providing energy, regardless of usage.
These tariffs will guarantee the price of energy for a set period and are a good way of controlling your budget. Fixed rates are also usually lower than standard variable tariffs.
The fixed rate only applies to the unit price of energy, not the amount shown on your bill. If you use more energy, your bill will rise. Many consumers prefer fixed-rate tariffs as they offer protection from energy price rises.
At the end of your fixed-rate period, you will either need to find another fixed-rate deal or your provider will switch you over to the standard variable tariff (see below).
As the name suggests, your energy price will go up or down according to the market. Variable tariffs can be cheap when energy prices fall, but you will pay more when they rise.
Suppliers have a standard variable tariff, which you will be charged when your fixed-rate deal expires. Research has proved that variable rates are usually more expensive than fixed-rate tariffs.
This is when the unit price of energy is capped at a certain point – and it won’t go over this agreed amount. Prices can be capped per unit of energy, or against another tariff (for example, a tariff might be capped to be no more than 10% over the standard variable tariff).
Like variable tariffs, prices can go up or down but won’t exceed the agreed limit. These tariffs do not cap your total bill, just the unit price of energy/heat you use.
These are community energy schemes usually for apartment buildings, housing associations or commercial developments.
The method of calculating the cost per user varies from scheme to scheme. The final bill for each user will usually include metering based on price per energy unit, a maintenance charge based on the size of the home/office and a further fixed charge to cover management and administration costs.
Please note that fixed charges may be based on property size or type, or they could be simply shared equally between the number of properties.
The heat tariff is at the heart of the relationship between a consumer and the energy supplier or provider. To be successful, tariffs need to cover the cost of providing energy to the consumer, while providing fairness and transparency.