We don’t really know why people don’t switch their gas and electricity contracts. Although market research points to apathy, contentment and a distrust of the energy companies, the fact remains that over half of British businesses wind up paying far too much for their energy.
For example, a typical company that hasn’t switched for two years would save 30% on their average bill. A company that’s never switched could probably save 70%. That’s because each year you’re sent a renewal reminder from the energy company showing your new rates. They don’t compare the new prices to your current agreement, so you can’t see the increase. There’s also no total price shown.
But most people don’t know what their bill should be in any case. In the examples above, business owners either think the prices look fine, run out of time to manage the process, or don’t want to do anything about it. Either way, an increase of 20-30% is applied and no further action is taken. So what can be done?
Take Two Minutes and Compare Prices
The business energy sector works in a similar manner to the domestic arena with a few additional hoops to jump through. All SME gas and electricity contracts are fixed in price and duration. Only larger companies can opt for variable pricing.
Below are the main steps in switching from your current provider:
- Find a comparison site or energy broker – 1 minute
- Submit your address details – 20 seconds
- Select a new tariff (1) – 5 seconds
- Cancel your current agreement – 30 seconds
- Sign your new agreement – 5 seconds
It may of course take a little longer than two minutes but, as you can see, the process is relatively straightforward—and all new tariffs are cheaper than any renewal letter you’ll receive. Finding a trustworthy business energy broker means all the work is undertaken on your behalf. They’ll also perform the same tasks when your new agreement comes up for renewal. The good brokers have access to the cheapest rates in the marketplace because of their buying power, so can reduce costs even further.
Prices do vary by supplier. There’s enough variation to make a difference. Why? Because each supplier targets different industries, regions and size of business. If your current supplier targets large multinationals, your SME price is likely to be uncompetitive. You’ll only find out by comparing pricing tariffs from all companies supplying energy for your premises.
The Contract Termination Conundrum
Business contracts have different protection than consumer based agreements, so formalities need to be followed. Although there’s a regulator overseeing the industry, once you’re in contract, you have to follow the terms. The regulator is unlikely to help if you change your mind later. There is no 14-day cooling off period or flexibility that’s afforded under consumer law.
Therefore, certain formalities need following:
- You need to formally cancel your existing contract. That means you need to email, fax or post a letter to your current provider to end the contract when it finishes. (See templates here.)
- Once complete, you’re now effectively out of contract when the current agreement expires. Don’t worry about loss of power because that continues, but if you forget to find another contract, you’ll automatically charged special rates far higher than any standard tariff in the market.
The Wholesale Market Effect on Prices
The UK is mostly dependent on gas and electricity supplies from overseas producers. Current prices are stable (although the price quadrupled recently due to supply issues) and that’s why no changes in retail prices have been announced in recent years.
The wholesale price accounts for approximately 45% of a bill, so a 10% hike results in a 4.5% rise in bills. Most providers hedge their supply many years ahead to smooth out any daily fluctuations.
When prices are low as they are now, it’s prudent to fix for as far ahead as possible. As all business contracts are fixed in contract length, now is a good time to fix for a longer period. Usually one-, two- or three-year contracts are most common, but some providers offer five year deals. These carry a small premium over a standard contract.
Over the medium-to-long-term, wholesale prices are likely to rise. The Hinkley Point Power Station deal will increase prices by some 10%, although that’s coming on stream in 2025 at the earliest.
- Terminate your current contract so it expires when due
- Find the cheapest prices for a one- to five-year contract
- Sign the new agreement and benefit from lower prices
Cutting your energy bills in half could be a reality if you’ve never done anything about them before. Even if you switch every year, you’ll always get a better deal than any renewal offer made.
Jason Smith is an energy expert who manages the website Business Electricity Prices.