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Collective switching explained
One of the options available for domestic customers who are looking to save money on their energy bills is collective switching.
Also known as collective energy purchasing, collective switching involves a group of consumers working together to negotiate with gas and electricity suppliers to get a better energy deal. In theory, the collective bargaining power of the group should prompt suppliers to offer competitive deals that enable each member of the group to make bigger savings than they would do if they switched alone.
The following is a short guide to the basics of collective switching, and how it can benefit you.
How does collective switching work?
There is no set model to collective switching schemes, although they usually involve a third party – perhaps a local authority, housing association, charity or special interest group – who organises the scheme and negotiates with the energy suppliers on behalf of participating households.
Generally, the first step in a collective switching scheme is for the third party to garner the interest of a large group of people to register for the scheme. Once a pre-determined number of people have registered, the scheme is closed to new participants and the third party begins negotiations in what is a called a reverse auction.
A reverse auction is one where sellers (in this case the energy suppliers) compete against each other to obtain business from the buyers (in this case the households registered for the scheme). Theoretically, in a reverse auction, the sellers should steadily lower their prices and offer better deals as they try to undercut the other suppliers.
Once all bids are made, the third party chooses the ‘winning’ tariff. Participants are then contacted with the details of the tariff and offered a specified amount of time – typically two weeks – within which they can switch to what should be a very competitive deal.
Joining a collective switching scheme
Some collective switching schemes allow participants to both register for the scheme and sign up to the offered tariff at the same time. However, the majority of collective switching schemes require participants to register for the scheme in advance, before a specified deadline. You can usually register by phone or online, and will need to provide the following information:
- Your name, address and contact number
- Details of your current tariff and supplier.
- Your energy usage.
Registering in advance helps the organisers assess the collective needs of the participants which can help ensure they choose a deal that suits as many individuals in the group as possible.
Should I accept the winning tariff?
Participants are not usually under any obligation to sign up to the deal being offered. All participants are free to handle their energy matters however they see fit, whether this involves accepting the collective switching deal, remaining with their current supplier or carrying out their own price comparison to find a different deal.
In fact, as energy needs can differ from household to household – and certainly differs across regions – it is important to compare the market as a whole using an Ofgem-accredited price comparison site before committing to a deal. This will help make sure you’re choosing the best tariff for your particular circumstances.
If you do choose to switch to the deal being offered, you’ll need to confirm this with the third party who will pass on your details to the supplier. The supplier will then contact you to complete the deal.
Who can join a collective switching scheme?
Any energy consumer can become involved in a collective switching scheme. However, a collective switch scheme is most beneficial if the group consists of like-minded individuals sharing a common energy goal, or individuals with similar energy needs. This way, the energy plan arranged through the scheme will be suitable for as many participants as possible.
Collective switching can also be beneficial for groups living in rural areas where higher distribution costs result in higher energy bills. The promise of a large group of potential customers could tempt suppliers to offer lower prices in the region than they otherwise would have offered. It could also help engage vulnerable customers who might be less capable of carrying out comparisons themselves.
Keep in mind that switching through a collective switching scheme may make you ineligible for the Warm Home Discount, which could result in you having to pay more for your energy.
Questions to ask before joining a collective switching scheme
The Department of Energy and Climate Change (DECC) has created a list of questions consumers should ask the organiser of a scheme before signing up. It’s worth finding out as much as you can about the third party who is organising the scheme, particularly focusing on whether they have prior relationships with suppliers.
Some of the questions you are advised to ask include:
- What are the goals of the collective switching scheme?
- Is the collective switching scheme free?
- How long will the entire process take?
- Would I need to pay a cancellation fee if I’m on a fixed tariff?
- Can I join the scheme if I’m in debt to my supplier?
- How long do I have to decide if I want to accept the tariff that’s offered?
- How can I find out the terms and conditions of the offer?
- Which suppliers will you be approaching on my behalf?
- Do you receive a commission if I switch?
- How will my personal information be handled?
- Am I obligated to switch if I sign up?
- What will you do with any profits generated?
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