Businesses, public bodies and charities spend around £20 billion on gas and electricity every year, and they account for almost 40% of Britain’s total energy demand. However, there seems to be a huge discrepancy in the prices businesses are paying and their appetite for switching.
There were a number of revealing insights into the non-domestic market in Ofgem’s report – here are the findings that could be significant for your business:
There’s a divide between smaller and larger businesses
Positive changes are happening within the business energy market. New suppliers are entering the market – there are 79 suppliers currently offering electricity or gas in the non-domestic market, compared to 68 in June 2016. The average time it takes to switch supplier is the same in both the domestic and non-domestic energy markets, at around two to three weeks. In recent years, the switching times for gas customers has improved considerably.
However, Ofgem have found that while the retail market is working well for larger businesses, smaller businesses are paying much more for their energy. On average, small and microbusinesses pay around 50% more than large businesses for their electricity, while gas prices can be twice as high. Despite the higher prices they’re paying, smaller businesses are less inclined to switch suppliers than larger businesses. Most small businesses are with the ‘Big Six’ energy companies, unlike larger businesses which tend to choose suppliers outside of the ‘Big Six’ for gas, and over a third of larger businesses also choose smaller suppliers for electricity.
Smaller businesses are missing out on cheaper deals
Smaller businesses are at a disadvantage in the non-domestic market as larger business customers have more bargaining power, which enables them to negotiate better deals with suppliers. Small businesses’ energy consumption is typically lower than larger businesses, so they often don’t have the same sway with suppliers. Industrial and commercial customers that are on half-hourly meters can also bring their energy costs down by shifting their consumption to periods of lower prices, whilst customers on non-half-hourly meters don’t have this opportunity.
Another key obstacle that is preventing smaller businesses from switching is that many of them are locked in to fixed-term, fixed price tariffs. In a 2016 survey, 53% of small businesses that hadn’t switched supplier said that they didn’t try to switch because they were locked in to their existing contract, and 32% said that they stayed with their current supplier because they wanted to avoid exit fees.
It’s encouraging that over the past year, two thirds of smaller businesses have engaged in the market, either by simply comparing deals, changing their tariff or switching supplier. While the number of small businesses switching supplier dropped by 4% between 2015 and 2016, 39% have successfully renegotiated their tariff with their existing supplier in the past 12 months. Those that did make the switch mainly cited lower prices or reaching the end of their current contract as their motivation for switching.
Can every business get a good deal in the current market?
One of the outcomes of the recent CMA investigation into the energy market is that suppliers can no longer lock businesses into automatic rollover contracts. Since June 2017, suppliers have been unable to charge exit fees or write no-exit clauses into automatic rollover contracts, so businesses can now give notice to terminate at any time. As contract lock-ins are a key reason for smaller businesses not switching suppliers, this could encourage many more small businesses to engage with the market.
Ofgem are also looking at extending the protections they provide to household customers to small business customers. They will consider introducing cooling off periods and reducing the supplier’s ability to object to switching for these customers. Ofgem have also started to collect a broader set of data on the non-domestic sector, as the data they currently have is limited, so they can carry out a more comprehensive analysis on the market.
At Inenco, we recognise that the non-domestic energy market can be difficult to navigate regardless of the size of your business. That’s where we come in – as industry experts, we can help businesses big and small to find the best deal for their needs. Find out whether you could benefit from switching by talking to our team today – call us on 08451 46 36 26 or email firstname.lastname@example.org.