The range in price between the cheapest and the most expensive business energy contract has never been wider, yet switching rates remain very low. Jonathan Elliott, managing director of the business savings experts, Make It Cheaper, offers some insight.
Business can find great deals on their energy consumption, says Jonathan Elliott. Image courtesy of: Renjith Krishnan/FreeDigitalPhotos.net
How business prices differ from domestic
Buying energy as a business is a more complicated affair than as a household consumer. There are at least a dozen pieces of information that can determine what prices each business is eligible for – such as postcode, annual consumption and company credit score – which can make shopping around a tiresome task. Buried in the array of tariffs are other factors that take into account the type of business you are. A high energy consuming restaurant, for example, would look for a split where evening and weekend rates were low whereas a low consuming office might opt for a tariff with a high standing charge, offset by lower unit rates because it consumes most of its energy at peak times.
And businesses who’ve recently moved premises are most vulnerable to higher energy prices. If you’re new to a commercial property then, the chances are, the old tenant’s supplier is charging you ‘out-of-contract’ (or ‘deemed’) rates and these are typically twice as high as in-contract prices. As a result, it is not unusual for one business to be paying two or three times as much as the building next door for exactly the same amount – and often when the power is supplied by the same company.
Alarmingly a business could be accumulating these higher charges without receiving any bills – and business energy users can be back-billed for up to six years so there is no escape in the form of consumer protection that householders receive.
Case study: The Manor Arms saves £10k in electricity
The Rollover Trap
Businesses pay fixed price tariffs for one, two or three years and, because of all the recent price rise announcements, it is not unusual for businesses to see their prices doubling as they come up for renewal at the end of their contract. For example, Haywards Heath’s fashion boutique Doodie Stark was paying 8p/unit for its electricity until recently when its supplier wrote to say the rate was going up to 16p/unit.
A typical renewal window for a business energy contract will be between 120-30 days before the contract end date, and it is usually only during this period that you can apply to switch or look to negotiate a better deal. If a business fails to act before the end of the renewal window, their contract will automatically ‘rollover’ on to renewal rates for at least another 12 months.
Video: How to avoid a rollover
The market caters for switched-on savvy shoppers at one end of the price range while taking advantage of indifferent businesses at the other that fall into a cycle of automatically renewing contracts. A current rule of thumb is that - if you are paying anything over 10p/unit for business electricity or over 4p/unit for business gas - it would be worth taking some form of action.
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Video: The upward trend in business energy prices
Over half (54 percent) of businesses have never switched electricity supplier and nearly a fifth (18 percent) are unaware that they are able to do so, according to research we recently commissioned. In fact only 7 percent of the 500 businesses who responded to the survey had managed to switch electricity in the previous 12 months, compared to annual switching rate of households running at 18 percent, according to the latest figures from Ofgem. Alarmingly 79 percent of businesses said they had never received or couldn’t remember receiving a ‘renewal letter’ from their supplier – this despite Ofgem’s efforts to raise awareness of its importance.
Jonathan Elliott is founder and MD of Make It Cheaper. With a career beginning as a BT management trainee, Jonathan’s first MD role was with consumer comparison site Buy.co.uk - from 2000 to 2003, during which time it secured US$20 million of investment and was acquired by uSwitch. He subsequently launched Make It Cheaper, growing it from scratch to a 100-seat call centre, helping 2,000 businesses a week get a better deal on their utilities. Jonathan was shortlisted in 2011 as a finalist for Ernst & Young’s Entrepreneur of the Year.