Home Heat Pump Guide

Variable Rate Tariff vs Fixed Rate for Heat Pumps

Choosing the right electricity tariff is one of the most overlooked decisions heat pump owners make — yet it can affect your annual running costs by hundreds of pounds. A heat pump uses significantly more electricity than a typical household, which magnifies the difference between a good tariff and a mediocre one.

The fundamental choice is between a fixed rate tariff (you pay the same price per kWh for the duration of a contract) and a variable rate tariff (the price changes, either quarterly with the Ofgem price cap or in real time with agile tariffs). Each has distinct advantages depending on your circumstances, risk tolerance, and whether you have solar panels.

Fixed Rate Tariffs: Certainty and Simplicity

A fixed rate tariff locks in your electricity price per kilowatt-hour for a set period — typically 12 or 24 months. You know exactly what you will pay per unit of electricity regardless of what happens in the wider energy market.

How fixed tariffs work for heat pump owners

With a fixed tariff, every kWh your heat pump consumes costs the same whether it runs at 2am or 2pm, whether it is January or July. Your running costs become entirely predictable — you can calculate your annual heating bill by multiplying your total kWh consumption by the fixed unit rate.

Advantages of fixed tariffs

  • Budget certainty: You know exactly what each unit costs for the contract duration
  • Protection from price rises: If wholesale electricity prices increase, your rate stays the same
  • No behaviour change needed: You do not need to shift your heating schedule around cheaper periods
  • Simple to understand: One rate, one standing charge — no complexity

Disadvantages of fixed tariffs

  • Risk premium: Fixed rates are typically 5-15% higher than the current variable rate, as the supplier bakes in a margin against price increases
  • Exit fees: Leaving a fixed contract early usually incurs a penalty of £30-100 per fuel
  • No cheap periods: You cannot access overnight or off-peak rates for heat pump operation
  • Locked in if prices fall: If wholesale prices drop, you are stuck at the higher fixed rate

Variable Rate Tariffs: Flexibility and Potential Savings

Variable rate tariffs come in two main flavours, and the distinction matters enormously for heat pump owners.

Standard variable tariff (SVT)

The default tariff most suppliers offer. The unit rate changes quarterly in line with (or close to) the Ofgem energy price cap. You have no contract, no exit fees, and complete freedom to switch at any time. However, the SVT rate tends to be higher than either fixed deals or specialist tariffs — it is essentially the "lazy" option that costs more.

Time-of-use (TOU) tariffs

This is where things get genuinely interesting for heat pump owners. Time-of-use tariffs charge different rates at different times of day. The most well-known examples include:

  • Octopus Agile: Price changes every 30 minutes based on wholesale rates. Can go negative (you get paid to use electricity)
  • Octopus Cosy: Specifically designed for heat pump owners. Cheap morning and afternoon slots for heating
  • Octopus Go: Cheap rate (currently around 7-10p/kWh) for several hours overnight
  • Economy 7 / Economy 10: Traditional off-peak tariffs with 7 or 10 hours of cheaper electricity, usually overnight

Why TOU tariffs suit heat pumps

Heat pumps are uniquely well-suited to time-of-use tariffs because heating demand is flexible. You can pre-heat your home during cheap overnight periods, charge your hot water cylinder during off-peak hours, and use your home's thermal mass as a free battery. A well-insulated home heated to 21°C at 5am (using 7p electricity) will still be 19-20°C at 8am — you have shifted energy consumption from expensive to cheap periods without sacrificing comfort.

On Octopus Cosy, heat pump owners report effective heating costs of 2-3p per kWh of heat delivered. That is cheaper than gas. This tariff provides cheap windows specifically designed for heat pump operation, acknowledging that heat pumps work best with steady, planned energy use rather than reactive demand.

Current UK Market Conditions (2026)

The energy market in 2026 is quite different from the crisis of 2022-2023. Wholesale prices have stabilised, though they remain above pre-crisis levels. Here is the current landscape:

  • Ofgem price cap (Q1 2026): Approximately 24p/kWh for electricity, 6p/kWh for gas
  • Best fixed tariffs: 22-25p/kWh for electricity (12-month deals)
  • Octopus Cosy off-peak rate: Approximately 10-12p/kWh during heat pump windows
  • Octopus Agile average: Varies widely but averages around 20-22p/kWh with some periods below 10p

The trend in 2026 is towards relative stability. Fixed deals are priced close to the variable rate, which suggests suppliers expect prices to remain broadly flat. This makes the decision more about your personal circumstances than about trying to outguess the market.

What Most Heat Pump Owners Actually Choose

Based on community surveys, forum discussions, and industry data, here is how UK heat pump owners are splitting their tariff choices:

Specialist TOU tariffs: approximately 45%

The largest group of heat pump owners are now on specialist time-of-use tariffs, particularly Octopus Cosy and Octopus Go. These owners tend to be engaged, tech-savvy, and willing to adjust their heating schedules to maximise savings. They often have solar PV as well, creating a comprehensive energy strategy.

Fixed rate tariffs: approximately 35%

The second largest group prefers the certainty of a fixed deal. These owners often chose their tariff before their heat pump was installed, or they value simplicity over marginal savings. There is nothing wrong with this approach — the peace of mind has genuine value.

Standard variable tariff: approximately 20%

The remaining owners are on the SVT, often because they have not actively chosen a tariff or because they want maximum flexibility to switch without exit fees. This group is typically paying more than they need to.

Which Tariff Should You Choose?

The best tariff depends on your specific situation. Here is a decision framework:

Choose a TOU tariff if:

  • You have or plan to get solar PV panels
  • Your home has good thermal mass (solid walls, concrete floors) that holds heat well
  • Your home is well insulated
  • You have a hot water cylinder (thermal storage)
  • You are comfortable with smart controls and scheduling
  • You want to minimise costs and are willing to engage with your energy use

Choose a fixed tariff if:

  • Budget certainty is your top priority
  • You believe electricity prices are likely to rise in the next 12-24 months
  • Your home loses heat quickly (making pre-heating less effective)
  • You do not want to think about when you use electricity
  • You are on a tight budget and cannot afford bill surprises

Avoid the standard variable tariff

Unless you have a specific reason (such as planning an imminent switch and wanting no exit fees), the SVT is almost always the worst option for heat pump owners. You get none of the certainty of fixed rates and none of the savings of TOU rates. It is worth spending 30 minutes switching to either a fixed deal or a specialist heat pump tariff — the annual saving typically exceeds £100.

How to Switch and What to Watch For

Switching process

Switching electricity supplier or tariff in the UK is straightforward and typically takes 2-5 working days. You can switch via comparison sites (Uswitch, Compare the Market) or directly through supplier websites. For specialist heat pump tariffs like Octopus Cosy, you usually need to apply directly and may need to prove you have a heat pump installed.

Key things to check

  • Standing charge: Some TOU tariffs have higher standing charges that offset unit rate savings. Calculate total annual cost, not just the unit rate
  • Smart meter requirement: Most TOU tariffs require a SMETS2 smart meter. If you do not have one, your supplier can install one for free
  • Exit fees on current tariff: Check whether leaving your current deal incurs a penalty
  • Tariff availability: Not all specialist tariffs are available in all regions. Check your postcode

The Hybrid Approach

Some heat pump owners use a hybrid strategy: they start on a TOU tariff, monitor their consumption patterns for a few months, and then decide whether to lock in a fixed deal or stay variable based on actual data.

This is actually quite sensible. Your first winter with a heat pump is a learning experience. You do not know yet exactly how much electricity you will use or when you will use it. Starting on a flexible tariff with no exit fees gives you the freedom to experiment with scheduling and then make an informed decision.

If you have a good estimate of your annual electricity consumption, you can model both scenarios. Multiply your total kWh by the fixed rate for one figure, then estimate your TOU cost based on how much consumption you can shift to off-peak. If the TOU calculation saves more than £50-100 per year, it is worth the minor extra effort.

Frequently Asked Questions

Does Octopus Cosy really save money for heat pump owners?

Yes, in most cases. Heat pump owners on Octopus Cosy typically report annual electricity costs 15-25% lower than those on a standard flat-rate tariff. The savings are greatest for well-insulated homes that can pre-heat effectively during cheap windows. However, you need a smart meter and must be willing to schedule your heating around the tariff's cheap periods.

Can I use Economy 7 with a heat pump?

Economy 7 can work if you have good thermal storage (a large hot water cylinder and a well-insulated home). However, the off-peak hours are typically 12am-7am, and the daytime rate is often higher than a flat-rate tariff. Modern TOU tariffs like Octopus Cosy are generally better suited to heat pumps as they offer cheaper windows at more useful times.

What if I have solar panels — which tariff then?

Solar panel owners should strongly consider an agile or TOU tariff. You generate free electricity during the day, use cheap grid electricity overnight, and only pay full price for the small gap in between. The combination of solar and a TOU tariff can reduce effective electricity costs to as little as 10-14p per kWh on average — brilliant for heat pump economics. See our guide on export tariffs and heat pumps for more detail.

How often do variable rates change?

Standard variable tariffs change quarterly in line with Ofgem's price cap review. Agile tariffs like Octopus Agile change every 30 minutes. Specialist tariffs like Octopus Cosy have fixed cheap and peak periods but the actual rates may be adjusted periodically. Always check the specific terms of your tariff.

Should I fix for two years or one?

In the current stable market, one-year fixes tend to offer better value as the premium for price certainty is smaller. Two-year fixes include a larger risk margin for the supplier. Unless you strongly believe prices will rise significantly, a one-year fix (or rolling TOU tariff) is usually the better choice for heat pump owners in 2026.

Is it worth switching tariff mid-contract for a heat pump?

Possibly. Calculate the exit fee from your current deal versus the annual saving from switching. If you are paying £200+ more per year on your current tariff, paying a £50-100 exit fee to switch is clearly worthwhile. Many fixed tariffs have no exit fees in the final 49 days of the contract — mark this date in your calendar and start comparing deals in advance.