What are electricity & gas tariffs?
Electricity tariffs refer to the charges that consumers pay for electricity use. In the UK, these charges are typically set by the electricity provider, and they are based on various factors such as the cost of generating and distributing electricity, the infrastructure and equipment needed to supply electricity, and any taxes or fees that may be applicable.
Similarly, gas tariffs refer to the charges consumers pay for using natural gas, which is commonly used for heating, cooking, and other purposes. Similarly to electricity tariffs, gas tariffs are set by gas providers. They are based on various factors such as the cost of producing, transporting, and distributing natural gas.
Ofgem (the Office of Gas and Electricity Markets) is responsible for regulating the electricity and gas markets in the UK and ensuring that energy suppliers treat their customers fairly. This includes monitoring electricity and gas tariffs offered by energy suppliers.
How are tariffs structured?
Electricity and gas tariffs can be structured in various ways, typically:
Fixed-rate tariffs: These are tariffs that are set at a fixed price per unit of electricity or gas consumed, regardless of the time of day or the level of demand.
Time-of-use tariffs: These tariffs vary depending on the time of day or the season in which energy is consumed. For example, electricity may be more expensive during peak hours (when demand is high) and cheaper during off-peak hours. This pricing structure is designed to encourage consumers to shift their energy consumption to off-peak hours, which can help to reduce the strain on the energy grid and make more efficient use of available energy resources.
Variable tariffs: These tariffs can change depending on market conditions, such as the price of natural gas or the cost of producing electricity. This means that the price per unit of energy can fluctuate over time and may be higher or lower than a fixed-rate tariff. Variable tariffs are typically set by energy providers and can be influenced by various factors, including supply and demand, global events, and regulation changes.
Tiered tariffs: These tariffs are structured in tiers, with the price per unit of electricity or gas increasing as consumption levels increase. Consumers who use more energy (electricity or gas) may pay a higher rate per unit than those who use less.
As we have all experienced over the last year, electricity and gas tariffs can significantly impact the cost of living for consumers, and they can also affect the competitiveness of businesses that rely on electricity and gas supply. As a result, electricity and gas tariffs are often subject to public debate and scrutiny.
What components go into a tariff?
- Energy cost: This is the cost of the actual electricity and/or gas that you use, which is charged in pence per kilowatt-hour (kWh). The energy cost can vary depending on the supplier and the tariff you are on.
- Standing charge: This is a fixed daily fee that covers the cost of maintaining the electricity and gas pipeline network and supplying your property with electricity or gas. It is usually charged in pence per day.
- VAT: Value-added tax (VAT) is a tax charged on most goods and services in the UK, including gas and electricity.
- Climate Change Levy (CCL): The CCL is a tax on energy use that is designed to encourage businesses and households to use energy more efficiently and reduce their carbon emissions.
- Feed-in tariff (FIT): The FIT is a government scheme that provides payments to households and businesses that generate their own electricity using renewable sources, such as solar panels. The cost of the FIT is included in the overall electricity price, but is not relevant in the case of gas tariffs.
- Other charges: There may be other charges that are specific to your supplier or tariff, such as early termination fees or discounts for paying by direct debit.
It is also worth noting that different energy suppliers and tariffs can include different combinations of these components, and the actual cost of gas or electricity can also vary depending on factors (more on that below!).
What external factors can affect the tariff?
The cost of buying energy from wholesale markets is a significant factor in determining the overall cost of electricity, particularly gas, given that gas still accounts for 40% of the UK’s electricity mix. When wholesale energy prices rise, this can lead to higher tariffs for consumers – as we’ve seen over the last year. Similarly, with gas tariffs, an increase in the global gas price feeds into elevated gas tariff prices.
The UK government provides various subsidies and incentives for generating renewable energy. The cost of these schemes is reflected in the cost of electricity and accounted for within tariffs. Therefore, increasing or decreasing levels of government support for renewable energy can shift prices higher or lower.
The level of competition between energy suppliers can also impact tariffs. If more suppliers are offering competitive tariffs, this can help to keep prices lower for consumers.
Electricity prices and the tariffs offered to consumers can also vary depending on your geographical location in the UK. This is usually because of the variation in transmission and distribution costs across the UK. For example, areas that are more remote or have lower population densities may require more expensive infrastructure to deliver energy, which can be reflected in higher prices for customers in those areas. The level of competition among energy suppliers can vary depending on location, thus affecting tariff prices.
What are ‘green’ tariffs?
Green electricity tariffs are typically sourced from renewable energy sources such as wind, solar, biomass and geothermal energy, and in the case of some tariffs, from other low-carbon sources like nuclear (as the case with EDF!).
Green gas tariffs usually involve sourcing some or all of the gas that the company supplies to its customers from renewable sources, such as biogas produced from organic matter like food waste or agricultural by-products. This can help to reduce the carbon emissions associated with gas usage.
In addition to sourcing renewable gas, green gas tariffs often also involve carbon offsetting. Carbon offsetting involves the purchase of carbon credits to offset the carbon emissions associated with gas usage. The carbon credits are typically generated by projects that reduce or remove carbon emissions, such as renewable energy projects or reforestation efforts.
Green tariffs have grown in popularity among consumers, and many UK suppliers are now offering them to their customers. As a recap, the ‘green’ electricity for these tariffs can be sourced in three main ways:
- directly from a company’s own renewable energy generating capacity
- by buying directly from independent renewable energy generators or
- by purchasing certificates, known as REGOs
REGOs
REGO stands for Renewable Energy Guarantees of Origin and is a very important term to get to grips with when discussing green electricity supply. It is a certification scheme used in the UK to track and verify the source of renewable electricity. REGOs are issued to renewable energy generators for every megawatt hour (MWh) of electricity they generate, proving that the electricity was generated from a renewable source. Energy suppliers can purchase REGOs to demonstrate that they are sourcing a certain proportion of their electricity from renewable sources.
Green tariffs increasing in popularity, but are there any downsides?
Green tariffs can be an effective way to support the development of renewable energy and reduce carbon emissions. However, it is important to research and compare different green tariffs to ensure they are legitimate and effective in supporting renewable energy source, as opposed to ‘greenwashing’. That’s where comparegreen.com can help.
Besides the greenwashing risks, there are some concerns over the impact large volumes of renewable energy have on the electricity market itself, especially in terms of the reliability and stability of the grid system. Specifically, the availability of renewable energy is often affected by weather conditions, which can lead to fluctuations in the amount of green energy that is produced and supplied to the grid.
This can impact the stability of the electricity system and, considering that widespread energy storage is not in place in the UK, a baseload source of electricity is needed to maintain stable supply, for example, gas or coal. It will not be possible to fully decarbonise the electricity market until the technology is in place to enable this. That said, the UK is making positive steps in this regard and you can still do your bit to enable this transformation.
Turning to the main downsides of green gas, it can be more expensive to produce than traditional natural gas. Green gas is more expensive because it requires more processing than traditional natural gas. This is because the organic waste materials that are used to produce green gas need to be treated and processed to remove impurities and create a high-quality gas product that can be injected into the gas grid.
Another reason green gas is more expensive is its limited production. While the UK has made significant progress in increasing its production of biomethane in recent years, it still only accounts for a small fraction of the total gas supply. As a result, there is currently a limited supply of green gas available, which can make it more expensive.
The latest green energy tariffs
Search and compare the latest green energy tariffs
