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.