ENERGY · FIXED VS VARIABLE ENERGY TARIFFS
Fixed vs Variable Tariffs Explained
Understanding the difference between fixed and variable energy tariffs in the UK and how to choose the right one for your home.
Quick summary
- Fixed tariffs lock your unit rate for a set period
- Variable tariffs can rise or fall with market changes
- The Energy Price Cap limits most standard variable tariffs
- Fixed tariffs often include exit fees
- The best choice depends on risk tolerance and market conditions
For information only
Choosing an energy tariff is one of the most important financial decisions households make each year. The type of tariff you choose affects how predictable your bills are, how exposed you are to market price changes, and whether you can leave your contract without penalty. In the UK domestic energy market, the two main tariff types are fixed tariffs and variable tariffs. Both are regulated by Ofgem, and both are affected by the Energy Price Cap in different ways. This guide explains how each tariff works, the advantages and risks, how the Energy Price Cap interacts with them, and how to decide which may suit your circumstances. This is general information about UK energy tariffs. It is not personal financial advice.
What Is a Fixed Energy Tariff?
A fixed energy tariff locks in your unit rate (the price per kWh) and standing charge for a set period, usually 12, 18 or 24 months.
This means that even if wholesale energy prices rise during your contract, your rates remain unchanged until the fixed period ends. Your monthly direct debit may still change if your usage changes, but the underlying rate you pay per unit remains the same.
Fixed tariffs provide cost certainty. This can make budgeting easier because you know the maximum you will pay per unit during the term.
However, fixed tariffs usually include early exit fees. If you leave before the end of the contract, you may pay a charge unless you are within the final 49 days of the contract, when Ofgem rules allow switching without penalty.
Fixed tariffs can sometimes be priced higher than variable tariffs at the time of purchase because they include protection against future price rises.
What Is a Variable Energy Tariff?
A variable tariff does not lock your rates. The supplier can increase or decrease the unit rate and standing charge, subject to regulatory limits.
The most common variable tariff is the Standard Variable Tariff (SVT). This is typically the default tariff customers move onto after a fixed contract ends.
In the UK, most SVTs are protected by the Energy Price Cap, set by Ofgem. The cap limits the maximum rate suppliers can charge for a typical household using direct debit. It is reviewed quarterly.
If wholesale prices rise sharply, the price cap may increase. If wholesale prices fall, the cap may decrease.
Variable tariffs generally have no exit fees. This makes them more flexible if you want to switch quickly.
The Energy Price Cap — How It Affects Each Tariff
The Energy Price Cap only directly applies to standard variable tariffs and some default tariffs. It does not cap fixed tariffs.
The cap sets a maximum unit rate and standing charge based on region and payment method. It does not cap your total bill — your bill depends on how much energy you use.
For example, if the cap is set assuming a “typical” household uses 2,700 kWh of electricity and 11,500 kWh of gas, households using more than this will pay more overall.
Fixed tariffs are priced independently. Sometimes fixed deals are cheaper than the price cap. At other times, they are more expensive if suppliers expect wholesale prices to fall.
Ofgem
Phone: 0300 123 3333
Risk and Stability — Choosing Based on Your Circumstances
Choosing between fixed and variable is largely about risk tolerance.
A fixed tariff protects you against price rises but may prevent you from benefiting if prices fall. A variable tariff gives flexibility but exposes you to price increases.
If you prefer predictable bills and want to avoid surprises, a fixed tariff may suit you.
If you are comfortable with some volatility and want flexibility to switch quickly, a variable tariff may be more appropriate.
Market conditions matter. During periods of wholesale volatility, fixed tariffs may carry a premium. During stable or falling markets, fixed deals may offer savings over the cap.
Exit Fees and Contract End Rules
Fixed tariffs often include exit fees. These are typically charged per fuel if you leave early.
Ofgem rules allow customers to switch penalty-free in the final 49 days of a fixed contract. Suppliers must contact you before your contract ends to explain your options.
Variable tariffs usually do not include exit fees. This makes them easier to leave if a better deal appears.
Always check:
- Exit fee per fuel
- Contract end date
- Whether your rates revert to SVT automatically
- Notice period requirements
Direct Debit, Payment Method and Cost
Your payment method affects your tariff cost.
Direct debit tariffs are usually cheaper than standard credit (pay on receipt of bill) because they provide suppliers with predictable cash flow.
Prepayment meter tariffs may have separate caps and rates. Smart prepayment meters operate differently from traditional key/card meters.
Make sure you compare like-for-like:
- Same payment method
- Same region
- Same usage assumptions
Fixed vs Variable in Periods of Energy Crisis
During the 2021–2023 energy crisis, wholesale gas prices rose dramatically. Many suppliers withdrew fixed tariffs because pricing future risk became difficult.
In times of extreme volatility, fixed tariffs may disappear or be priced above the cap.
In more stable markets, fixed deals may return at competitive rates.
Understanding the broader energy market cycle can help inform timing, but predicting wholesale markets is difficult even for professionals.
Practical Steps Before Choosing
Before choosing a tariff:
Review your annual usage in kWh (not just monthly payments).
Check whether your current deal has exit fees.
Compare unit rates and standing charges separately.
Consider how long you expect to remain at the property.
Think about your risk comfort level.
Citizens Advice provides independent comparison information:
https://www.citizensadvice.org.uk
Energy helpline: 0808 223 1133
Key takeaways
- Fixed tariffs provide price certainty for a set term
- Variable tariffs move with market conditions but are capped under SVT rules
- Exit fees usually apply to fixed tariffs
- The Energy Price Cap limits unit rates, not total bills
- The right choice depends on personal risk tolerance and market timing
Is a fixed tariff always cheaper?
No. It depends on market conditions. Sometimes fixed tariffs are priced above the Energy Price Cap if suppliers expect prices to fall.
Can my fixed tariff price change?
Your unit rate and standing charge remain fixed during the term, but your monthly direct debit can change if your usage changes.
Does the Energy Price Cap apply to fixed tariffs?
No. The cap applies mainly to standard variable tariffs and default tariffs.
Can I leave a fixed tariff early?
Yes, but exit fees may apply unless you are within 49 days of the contract end date.
What happens when my fixed tariff ends?
You are usually moved to your supplier’s standard variable tariff unless you switch or choose a new deal.
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