What is a tracker tariff and how does it work?

The distinction matters because the two designs carry different risks. Tracker tariffs are not usually subject to the price cap, so a household on one can be charged more than the cap if prices rise beyond its limit¹. A cap tracker moves with the cap rather than with daily wholesale prices, and some versions carry an in-built discount against the cap³.

What a tracker does for a household is pass market movement through to the bill, in both directions. What it does not do is remove dependence on the wholesale market, on the supplier that sets and administers the rate, or on the grid that delivers the energy. The sections below set out how the pricing works, how it compares with fixing, what the default tariff cap covers, and what to read before switching.

How a tracker follows the wholesale price

The mechanism is straightforward in principle. A wholesale tracker sets the prices customers pay for their energy on a daily basis, following wholesale energy prices¹. The rate structure is the same idea stated another way: energy rates are based on wholesale energy prices, and the cost on a given day depends on wholesale prices that day². One supplier describes its own tracker as moving with wholesale prices⁶, and another describes its tracker mechanism as following a market index for transparency⁷.

That daily link is what separates a tracker from a standard variable tariff, where the supplier sets the rate and changes it on its own schedule, and from a fixed tariff, where the price you pay is set for a period of time⁵. It also separates it from the older restricted-meter designs: Economy 7 and Economy 10 use fixed cheaper periods, while newer EV and tracker tariffs can be more dynamic and usually work best with a smart meter².

In practice the rate a household sees is not a raw market price. It is the supplier's published rate for that day or period, derived from the market and set out in the tariff's terms. The frequency of change is a design choice, not a fixed rule: wholesale-linked trackers can move daily, while cap trackers change every three months when the price cap is reset, with most providers guaranteeing a discount on the price cap⁴. Standing charges on a tracker usually stay fixed for a set period, usually 12 months, so the volatile part of the bill is normally the unit rate rather than the daily charge².

For a household's independence, the tracker is a partial step. It removes the supplier's discretion over when to reprice, because the movement is tied to an index, and it lets a household capture falls in the market without waiting for a new fixed deal. It does not remove exposure to the market itself, and it does not remove the supplier from the relationship: the supplier still sets the formula, publishes the rate and bills for it.

Tracker vs fixed: which suits which household

The two tariffs answer different questions. A fixed rate sets the price you pay for a period of time⁵, and it cannot increase its prices for the time they are fixed unless the government raises VAT or the tariff is staggered⁸. A tracker does the opposite: it passes market movement through, which means the bill can fall without the household doing anything, and can rise the same way.

The choice turns on how much certainty a household wants and how much consumption it has. On the cap tracker variants, the discount design changes who benefits: a tracker where the discount sits on the unit rate suits higher consumption, while a cap tracker where the discount is taken out of standing charges would be better for lower-consumption households than a tracker where the discount is on the unit rate¹. Some tracker tariffs with an in-built discount take it out of standing charges, so while unit rates would change like a normal tracker, the standing charge carries the benefit³.

There is a wider point about what households actually know about their own tariff. Ofgem's research found considerably more consumers claim to be on fixed tariffs than the official data suggests, with 38% self-reporting a fixed tariff against 11% in the official data, and around one in five reporting no understanding of what fixed or variable tariffs are⁹. That gap matters for trackers too: a household that is unsure which type it is on cannot judge whether a tracker is a change of risk or a change of label.

For a household weighing independence, a fixed rate buys certainty at the cost of missing falls; a tracker buys market exposure at the cost of missing certainty. Neither removes reliance on the grid or on a supplier. The related comparison of fixed and tracker tariffs sets the two side by side, and the mechanics of wholesale-linked pricing are covered in more detail on tracker energy tariffs.

What the default tariff cap does and does not cover

The default tariff cap was introduced on 1 January 2019¹⁰. It protects households on standard variable and default tariffs, which Ofgem refers to collectively as default tariffs¹⁰. Under the legislation, Ofgem can only set one cap across the market, set to cover a notional efficient supplier, with no bespoke caps per supplier¹³. The licence requirements that set out suppliers' obligations for adhering to the cap specify the benchmark annual consumption level that should be used to set the level of default tariffs¹⁴.

What the cap does not do is cover tracker tariffs. Independent guidance states that tracker tariffs are not usually subject to the price cap, so customers can be charged more than the cap if prices rise beyond its limit¹. The same point is made more bluntly elsewhere: tracker tariffs are not subject to the price cap, so a household should be able to save if prices drop below the price cap³.

That is the whole of the trade. The cap is a ceiling for default tariffs, not a ceiling for the market. A household that moves from a default tariff to a wholesale tracker leaves the protection of the cap and takes on the market directly. A household that chooses a cap tracker stays close to the cap's level and often keeps a guaranteed discount against it, but it is still a tracker product rather than a capped default tariff¹.

Where the cap applies, it applies across Great Britain. Northern Ireland has its own arrangements, covered on energy tariffs in Northern Ireland, and the position in Scotland is set out on energy tariffs in Scotland.

Reading the Tariff Information Label before you switch

A Tariff Information Label is a breakdown of the tariff you pay for your energy¹⁵. It is the document that makes a tracker comparable with a fixed deal, because it sets out the unit rate, the standing charge and the terms in one place rather than leaving the household to reconstruct them from a bill.

Before changing supplier or tariff, the check is the same whichever type is being considered: make sure you understand any exit fees, fixed-term conditions or other charges that might apply¹⁶. On a fixed rate, remember that only the unit price and standing charge are fixed¹⁷, so other elements of the bill can still move. On a tracker, the label will show the current rate, but the rate itself is the part designed to change.

The label is also where the discount structure of a cap tracker becomes visible. A cap tracker tracks the level of the energy price cap and often provides a guaranteed discount against it, so it changes when the cap changes¹. Some trackers offer discounts against the price cap using standing charges rather than unit rates¹. Reading which element carries the discount is what tells a household whether the product suits its consumption shape.

One practical caution: not every product labelled a tracker is a plain wholesale tracker. A supplier's heat pump tracker tariff has been advertised as a trial rather than a standard product¹⁸, and bundled products can exclude tracker customers altogether. One supplier's Power Pack requires customers on Tracker or Agile import tariffs, Agile Outgoing export, or any of its Intelligent tariffs to switch tariffs first before joining¹⁹. Checking the eligibility rules on the specific product is part of reading the label properly.

Standing charges and unit rates: what you actually pay

A tracker bill has the same two components as any other: a standing charge and a unit rate. The difference is which part moves. On a tracker, standing charges usually stay fixed for a set period, usually 12 months, while the unit rate follows the market². On a fixed rate, both the unit price and the standing charge are fixed for the term¹⁷.

Standing charges vary depending on your supplier, your tariff and where you live²⁰. That regional variation applies to tracker products as much as to any other, so two households on the same named tariff in different areas can pay different daily charges. Where a tracker carries its discount in the standing charge rather than the unit rate, that regional and supplier variation feeds directly into how good the deal looks¹.

There is a separate design question about standing charges themselves. Tariffs with no standing charge usually charge a higher cost per kWh for each unit of energy used²⁰. One version of this structure charges a much higher unit rate for the first two units of gas and electricity used each day, then a lower, more normal rate for all usage after that²¹. A household comparing a tracker against a zero standing charge tariff is therefore comparing two different shapes of bill, not just two rates.

For a household's independence, the standing charge is the part of the bill that no behaviour changes. Shifting usage to cheaper hours reduces the unit rate element, which is why trackers and time-of-use tariffs are often discussed together, and why a smart meter is needed to get the full benefit of flexible tariffs²². The standing charge is paid whatever the household does, and it is the clearest reminder that a tracker changes how the energy is priced, not whether the home remains connected to a supplier and a grid.