Securing the best energy deal can be time-consuming but there can be big savings, reports Paul Spackman.
Customer loyalty counts for little with electricity supply contracts.
Potential savings from shopping around vary hugely, with some estimates suggesting businesses switching for the first time can save up to 30%.
See also: Make energy go further on arable farms
Those whose contracts have expired and automatically rolled on to a default tariff could make really large savings, says Nick Heath of energy broker Make it Cheaper. This is a partner of consumer price comparison website uSwitch, which serves business customers.
He estimates 45% of small businesses are on such default rates, although other sources suggest the figure is less for farm businesses. These could tie them into another 12-month contract and often price electricity at about 5p/kWh more than for new customers.
“Switching isn’t always easy, but inertia leads to higher bills,” says Mr Heath.
Alongside the “big-six” suppliers (British Gas, EDF, EON, Npower, Scottish Power and SSE) are many smaller firms vying for business.
However, searching for the best deal can be complex and takes considerable time.
Price comparison sites, such as moneysupermarket or gocompare, have generally targeted domestic supplies (meter profile classes 01 and 02), with business customers (03 onwards) referred to an intermediary. There are now comparison sites for 03 and 04 meter classes.
Going straight to an energy broker can save time and remove the complexity of switching supplier, says Andrew Kneeshaw of the Farm Energy Centre, which offers its own switching service.
But energy brokers are not regulated by Ofgem (there is a voluntary code of practice), so buyers need to beware, he says.
“Make sure you’re clear on the costs and commissions involved, what they’re offering and how much of the market they’re searching.”
Broker fees are generally fixed or most often are a commission, based on energy consumption.
Fixed fees for smaller energy users are typically a one-off charge of £70-£200 for the duration of the contract. This will include checking the market, providing best quotes and managing the switch-over.
Usage-based fees range from 0.1-0.8p/kWh, with large energy users likely to be at the lower end of this range, says Mr Kneeshaw.
“It’s not surprising for a typical farm to save 1-1.5p/kWh, or much more, by shopping around, so there’s scope to make a worthwhile saving even after paying the fee.”
The entry-level service for domestic users and smaller businesses is a “matrix pricing” system, as used on many comparison sites, says Mr Kneeshaw. These search a range of companies for the best available fixed price in that location (obtained from the meter point administration number (Mpan) on the bill).
Bespoke pricing is a more tailored service for those typically spending £10,000-£60,000/year on electricity, says Mr Kneeshaw. Here pricing is more accurately matched to consumption profile (usually from half-hourly metering), which will be put out to tender by the broker to find the best price.
There is also more interest in complex flexible tariff structures for even larger energy users and those generating their own electricity, he adds. The principle is similar to marketing grain, whereby a proportion of electricity is bought in advance and some on the spot market, spreading risk associated with locking into fixed deals.
How long to fix?
Mr Heath says about half of business energy contracts are fixed prices for a year as this is generally cheapest. However, fixing for longer periods may be worth considering given low wholesale prices, Mr Kneeshaw says.
“Historically energy prices have been 30-40% higher than now and while it’s impossible to predict the market, it’s unlikely they’ll fall much further, so there could be a lot to gain from locking into a good contract.”
Energy contract tips
- Understand your existing contract – expiry, prices, terms and conditions
- Don’t automatically renew without checking other deals
- Allow time (two months before expiry) to shop around – most contracts have a latest date for giving notice of 30 days before expiry
- Give written notice to quit your contract well before you intend to move, in accordance with the supplier’s terms and conditions. Do this even if you don’t intend to move as it keeps the door open, allowing you to exercise the option if you choose
- Consider as many suppliers as possible – do it yourself if you have time, or
- Use a reputable broker – be clear on charges/commission and breadth of market coverage
- Don’t be deterred if the current supplier contests a request to switch – identify the issue and resolve quickly
- Paying by monthly direct debit often gets a discount and makes budgeting easier
- Provide regular meter readings – don’t rely on estimates