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What is the tariff comparison rate (TCR)?

If you're looking at your gas or electricity bill, or if you're comparing energy tariffs online, you might be confronted with a TCR-a tariff comparison rate. Ofgem, the energy market watchdog, introduced the tariff comparison rate in 2010 to make it easier for customers to compare energy deals.

But what exactly is the TCR, how is it calculated, and how can you use it to find the best energy deal on the market?

How energy costs are represented

Some energy marketing will promise you a tantalising £900 a year for your total energy costs, and energy price caps supposedly peg the maximum price energy companies can charge you per year.

But if you're savvy about energy, or even if you've just ever taken a meter reading, you'll know that the price that matters is the per-unit charge for gas and electricity. We don't pay a flat fee for our energy connections, but sometimes energy costs are represented that way, calculated based on median or typical use. These per annum totals are calculated using a measure of typical use set by Ofgem-the Typical Domestic Consumption Values (TDCVs). The medium level TDCV is currently 12,000 kWh of gas and 3,100 kWh of electricity.

But they don't actually tell you much about how much you personally will pay for energy. If you aren't the median energy consumer-or even if you are but you crank up the thermostat in your average three-bed semi in average Swindon for a week-you'll pay more than that quoted price. Be more frugal with energy and you'll pay less than that quoted price.

A better representation of energy costs is the per-unit rate for gas and electricity and you might see tariffs represented this way. Fixed rate energy deals will allow you to lock in a per-unit rate for your fuel a period of 12, 18, 24, or 36 months.

In 2018, the average per unit rate domestic customers paid for electricity through variable tariffs was 15.8p per kilowatt hour in 2019, and the average per unit rate for gas was 3.74p/kWh.

Additional costs of energy

But if you've ever perused your energy bill, you know there's more to energy costs than these rates.

In addition to the per unit rate for gas and electricity, there's also standing charges, which cover the maintenance of your connection and servicing of your account. In 2018 standing charges averaged £77.02 per year for electricity connections and £85.53 per year for gas. They'll be higher if you pay by credit or prepayment rather than direct debit.

You'll also have discounts, such as those earned by paying by direct debit, taking a dual-fuel tariff, or having an online tariff (where all billing and meter reading is down via an online portal and you never receive anything in the post).

TCR: the APR of energy

The TCR is designed to reduce the complex maths of energy prices to a simple per unit rate for each tariff, represented as pence per kilowatt hour of electricity or gas (p/kWh).

Think of a tariff comparison rate like the annual percentage rate, or APR, on a credit card or loan. An APR shows the actual total annual cost of borrowing, accounting for peripheral costs. It represents the cost as a percentage, as the interest rate is represented. But it's a more accurate representation of the true cost of credit than a simple interest rate.

Similarly, a TCR shows the actual cost of energy, in the same denomination as a per-unit rate, but with more accuracy, accounting for additional costs and discounts.

A TCR assumes a typical energy use: the medium TDCV value of 3,100 kWh of electricity per year and 12,000 kWh of gas.

How it can help you

You can find the TCR for your current gas and electricity tariffs on your energy bills, annual statements, price increase notifications, and other communication from your supplier. As of June 2017, it no longer appears by regulation on energy comparison sites but you may still find it on energy marketing material.

But no matter what advertising says, when comprising tariffs and TCRs, its important to run a thorough energy comparison, with data such as your postcode and annual energy consumption, as prices vary regionally and depending on your energy use.

What else to consider when comparing energy

A TCR allows you to compare energy tariffs on a like for like basis, but not all suppliers are created equally. When comparing energy, you might be tempted to spring for the lowest price, but there's some variables a TCR can't account for, including the customer service of a supplier and its fuel mix, including the percentage of renewables it uses. If you're opting for a variable rate energy tariff, you also might want to consider how frequently a supplier has raised its prices in the past and if it's indicated further price hikes are in the pipeline.