How are business energy and domestic energy supplies different?

The gas and electricity that powers your business is the very same stuff that lights and heats your home - but energy companies treat domestic and business supplies totally differently. This article tells you how this is the case - and why it's something that you need to switch on to.

1. Energy suppliers buy differently

First and foremost, the way business energy and domestic energy suppliers buy energy is quite different.

Domestic energy suppliers buy their energy a few months in advance for all of their customers, while business energy suppliers buy energy as and when a contract is set up. At that point, the business energy supplier will buy enough energy to last that customer the length of their entire contract - this could be for as little as 1 year up to as much as 3 years in advance.

2. Business and domestic energy contracts work differently

Generally speaking, domestic energy contracts are 'rolling' contracts that don't have definitive end dates. This is the reason why customers can switch to other energy suppliers regularly to secure better prices for themselves. Fixed price/fixed term tariffs do exist for domestic customers, but usually a small cancellation fee will allow them to move away.

In contrast, business energy contracts are almost always fixed for a period of 1, 2 or 3 years, or more rarely, 4 to 5 years, with no option of early cancellation. This is why businesses are not immediately affected by gas and electricity price increases, because they are locked in to a fixed-term, fixed-price contract. The wholesale price of energy therefore only becomes significant when your contract comes to and end and needs to be renewed.

Rolling monthly contracts do exist, but the prices charged on these contracts are often significantly higher and we usually recommend they are avoided. However, some larger companies with annual bills of approximately £100,000 or more use 'flexible energy purchasing' to buy their gas and electricity, which means they purchase energy directly from the wholesale market.

3. How this affects your business

The fact that your business energy contracts come to a definitive end means you have to be proactive about setting up a new one. Inertia usually proves costly, because energy suppliers put you on 'rollover' rates that are likely to be significantly higher than the price you were paying before the contract ended. Spending more on energy eats straight into your profit - and with energy representing an average of 10% of businesses' overall cost base, the impact of rolling over could have a serious effect on your bottom line.

Suppliers are not always overly forthcoming about letting businesses know that their contract is coming to an end - and give them only a limited window in which to act. The benefit of contacting Make It Cheaper is that we can put this information in our system and get in contact with you when the right time comes. We're motivated to do this because we want to find you the best deal possible and set up your new contract - even if it means sticking with your current supplier on a fixed-rate tariff.

Make It Cheaper compares business gas and business electricity prices from across the market to secure the best possible price for your business. Call us now on 0800 970 0077 for your free quote and save up to 30% on your energy bills. Alternatively, you can complete the call-back form on the right hand side of this page.