It’s been well documented, particularly in recent weeks, that energy bills keep going up. The media is often full of information on the impact of domestic properties and advice on what consumers should be doing to lower their bills, but the impact on UK businesses is much less well understood.
Business owners and decision-makers also need to know that the amount they pay for energy usage is a cost that they are not totally powerless to affect. Some businesses pay much more for their gas and electricity than others – and this could easily mean thousands of pounds eating away at profits unnecessarily.
The key to avoiding this is a simple level of understanding – so here are five key things businesses should know.
1. 10p is too much to pay for a unit of electricity
As a quick and simple check, you can do right now to know if you’re paying too much, find out your unit rate by looking at a recent energy bill or by contacting your energy supplier and asking. If you’re paying 10p or more per kWh for electricity and 4p or more per kWh for gas then you’re paying too much and you should take action. And if your unit rate is too high, your daily standing charge will probably be too high also.
2. Beware the “rollover” contract
Business energy contracts are different from their household counterparts. There are no “dual fuel” tariffs in the commercial energy world – gas and electricity contracts are always separate and they are almost always fixed for a set time period – typically one, two, or three years.
This means contracts come to an end at a finite time – and when that happens, business customers “rollover” on to their supplier’s standard rate unless they’ve sorted out a new contract ahead of time. Often this “standard” contract is also fixed so once you roll over you can find yourself stuck for another year at least. This policy results in many businesses paying up to 30 per cent more than they could be.
3. Your renewal window is open at a strange time
Businesses can easily fall into the “rollover trap” because it’s not enough to just know your contract end date (CED). You also need to know when your opportunity to renew or switch contracts occurs. This is complicated by the fact that the timing of each supplier’s ‘renewal window’ is different – and once it’s shut, it’s shut. If you don’t know yours then you should investigate this now.
4. Suppliers thrive on lack of customer action
Energy suppliers are not proactive about triggering businesses’ action and will generally issue just one letter that quietly informs customers their renewal window is set to open. The supplier is happy for you to roll over – and they certainly want to avoid the worst-case scenario of losing your custom by prompting you to shop around.
The industry regulator Ofgem is slowly bringing in measures to address these issues, but for now, customers have to be fully engaged to know when and how to act.
5. Switching services support your engagement
Unlike the supplier itself, a switching service actively wants the customers to take the right action at the right time – and it can prompt this if it has your CED on record. The best course of action may be to go for a new contract with the existing supplier but, because a third party (unlike the supplier) is impartial, they might advise you to switch. During a renewal window, a business energy customer is completely free to shop around – and there is zero chance of gas or electricity being interrupted due to a change of supplier.
There are six major suppliers (British Gas, Npower, EDF Energy, e.on, ScottishPower and SSE), and at least six smaller ones, competing for businesses’ custom. Engaging the whole market through a switching service when making a purchasing decision almost inevitably leads to an energy deal that you’ll be happy about.