Microbusinesses and Your 4 Tips to Get the Best Business Energy Deals Cost Saving by Michael

Microbusinesses and Your 4 Tips to Get the Best Business Energy Deals

December 2017

There are just over 5 million microbusinesses in the UK. You may be wondering what the definition is of a microbusiness. In reality, it varies depending on what service it's regarding but for Business Energy it's if your business meets one of the following criteria;

  • Employs fewer than 10 employees (or their full-time equivalent) and has an annual turnover or balance sheet no greater than €2 million, or
  • Consumes not more than 100,000 kWh of electricity per year, or
  • Consumes not more than 293,000 kWh of gas per year.
  • To put this in context, a business consuming these amounts of electricity and gas would pay about £10,000-£12,000 per year for each fuel, excluding VAT.

    A recent energy market report by the Competition and Markets Authority (CMA) states they are concerned that many microbusinesses appear to show limited engagement and that they have limited interest in their ability to switch energy supplier. For example, in 2013 45% of microbusinesses were on default electricity tariffs (i.e. had been placed on a tariff that the customer or Third Party Intermediary had not actively negotiated). They also found that a substantial number of microbusinesses appear to be achieving poor outcomes in their energy supply pricing.

    The CMA compared rollover tariffs (tariffs that customers would pay if they took no action at the end of a fixed-term contract), retention tariffs (tariffs that customer actively renegotiate with their existing supplier at the end of an existing contract) and deemed tariffs (a tariff paid until a customer, typically in new premises, contacts its supplier to enter into its first contract). The comparison showed that rollover tariffs were 29 to 36% higher than retention tariffs for electricity (depending on the size of customer) and 25 to 28% higher for gas. Deemed tariffs were 66 to 82% higher than retention tariffs for electricity (depending on the size of customer) and 70 to 116% higher for gas.

    Overall, the CMA identified a combination of features of the markets for the retail supply of gas and electricity to SMEs in the UK that give rise to an adverse effect on competition through an overarching feature of little customer response from microbusinesses which, in turn, give suppliers a position of unilateral market power concerning their inactive microbusiness customer base which they then exploit through their pricing policies.

    Ofgem's website states "Around 10% of micro-businesses are on deemed contracts. It's vital that they are aware that prices on these contracts are on average 80 per cent more than rates charged in a negotiated contract."

    4 Top Tips for Microbusinesses and their Energy

    1. Know your energy contract renewal dates

    Knowing your contract renewal dates will put you in a much better position when it comes to energy renewals and allow you to Compare Business Energy in the right way and at the right time.

    2. Many microbusinesses agree contracts with energy suppliers over the phone; please don't be one of them!

    Always ask to physically sign a contract. And when it gets sent through to you (generally by email), always make sure the Terms and Conditions form part of the contract that you're about to sign. If they don't, then reject it.

    3. Finding the best energy deal! How hard can it be!?

    Unfortunately, it can be trickier if you're a microbusiness. For a start, there is no obligation for the energy suppliers to supply you. A supplier can determine which customers they choose to supply, whether that be based on the size of the supply or your credit rating. If you're going to start calling around for quotes then do you have the time and resources to commit to it? And are you able to compare apples with apples? If you're calling the suppliers direct then it'll be no surprise to you that their offering is going to be the one that is the best thing since incandescent light bulbs. So be prepared to make that same call 10 times over.

    4. If you choose to use a Third Party Intermediary (TPI), then know the basics. And choose a good one.

    This includes switching sites (which aren't recommended for business energy), energy brokers, energy consultants or any company that offers support with energy procurement. But not all TPIs are equal! Have some basic questions ready such as which suppliers will you be approaching for pricing? (the more the merrier but be warned, some TPIs don't research the whole market and some represent just one or a small group of suppliers), How many pricing offers will you present? (it shouldn't be more than 3-5 because it's their role to weed out the ones that aren't appropriate for you), What will you do during the switch and also the life of the contract? (they should still be working for you even after you've signed to ensure everything runs smoothly).

    "Ofgem's website states - Around 10% of micro-businesses are on deemed contracts. It's vital that they are aware that prices on these contracts are on average 80 per cent more than rates charged in a negotiated contract."