The Ultimate Guide To The Differences Between Business And Domestic Energy Companies

Let’s Get Down to Business

Understanding that the business and domestic energy markets do not operate in the same way is crucial to ensuring you are getting the best deal possible.

Because domestic consumers vote in elections, and businesses as entities obviously do not, it can be easy to presume that the facts, legislations, and figures discussed about residential energy consumption apply to both domestic and business consumers.

This is not true.

The residential perspective is what matters most to politicians because they are appealing for votes and the media publish what politicians discuss; as a result, most of the information readily available to the public about the energy markets is concerned with domestic consumption.

So, this guide will provide you with an overview of the main points of difference between the two markets. We hope this will help provide some clarity with regard to how the business energy market functions as Niccolo only supplies businesses.

An Overview

Is commercial or domestic energy cheaper?

  • Commercial, when used correctly.
  • Due to the bespoke prices offered for different business sizes/consumption rates contracts are more tailor-made for the actual usage of businesses. The larger volume of fuel that businesses require also makes their rates cheaper – think buying in bulk from Costco in comparison to buying singular items.
  • However, many businesses find themselves on rollover or continual contracts which renew automatically. This makes life simple for businesses; however suppliers are not obligated to renew contracts at their best rates. Furthermore, the extended length (up to 5 years) of business energy contracts often leaves business tied into disadvantageous contracts in which they’re overpaying.
  • This guide provides an explanation of what the business energy market looks like and how you can best navigate it.

Are businesses and domestic consumers both subjected to the same additional charges?

  • No. Businesses have to pay a higher VAT rate as well as being subject to the CCL, RO and FiT levies.

In which market is it easier to compare market prices?

  • Domestic. The commercial market is too complex (bespoke prices, longer contracts, supplier discretion) for comparisons to happen easily. Comparison sites are designed for domestic customers and may have a specialist option to advise businesses on a one-on-one basis.

Read below to learn more about the differences across:

  1. Contracts
  2. Prices
  3. Markets
  4. Processes

Between the commercial and domestic markets.

Contracts

A Brief Overview:

 BUSINESS ENERGY MARKETDOMESTIC ENERGY MARKET
Cooling Off PeriodThese are not a feature of the market because businesses are seen to be commercially capable enough to enter into contracts consensually and in full knowledge of what it’ll requireThese are a regular feature in the market. They offer protection for households who may enter disadvantageous or unclear contracts.
Contract LengthsAnything from 28 days to 5 yearsAlways 28 days with some longer term ‘fixes’
Contract Exit/Termination OptionsThere is no option to exit from a fixed term, fixed price dealOpportunity to leave arises after 28 days. You can also pay a set fee from your supplier to leave a longer term ‘fix’
Contract Terms Prices are fixed for the durationPrices are variable except where a fixed deal is chosen
‘Striking a Deal’Very high – there are options to negotiate and strike an advantageous dealLimited – aside from choosing ‘fixed’ contracts for financial security there aren’t market-reflective, advantageous prices

Further Elaboration:

Cooling Off Periods

This is a period of time following a purchase when the purchaser may choose to cancel their purchase and obtain a refund.

It lasts for 14 days and cannot be waived by the supplier.

Fixes/fixed Terms

These are contracts that have a ‘fixed’ price set for each unit of gas or electricity used within a specified time period. This means that the price you pay for the gas or electricity you use will not be affected by wholesale market price changes (within the fixed term of your contract).

Pricing

Brief Overview:

 BUSINESS ENERGYDOMESTIC ENERGY
PriceThese are lower than domestic energy prices due to the higher volume of fuel supplied – think how  buying in bulk is often cheaper than buying single –  as well as the bespoke pricing approachPrices are higher than business energy ones due to a ‘one size fits all’ approach
Pricing Methodology Bespoke for each business based on set criteriaGeneric
Pricing CriteriaDependent on your consumption, credit score, location, business type, demand profile, contract length and payment methodGeneric to your neighbourhood and payment method    
VAT Liability20% VAT except where an exemption is in place5% VAT  
Additional LeviesBusiness are liable for the Climate Change Levy, Renewables Obligation and FIT chargesDomestic consumers are not subject to Climate Change Levy  
Price PeriodsCan be priced from any two points over the 5-year periodCan only price be priced from ‘today’ to the end of contract  
Pass Through Charges Each individual supplier adopts their own commercial policy, many contracts are fully fixed across all elements, others allow some changes in third-party prices to be passed through (under exceptional circumstances)All suppliers pass through any third-party cost change regardless of contract type.          

Further Elaboration:

Bespoke Pricing Approach

Suppliers will often have different rates for Small/Medium Enterprises (SME), larger-scale businesses, businesses that also generate their own energy, and more. Businesses will be offered contracts that are more bespoke than the generic contracts offered to domestic consumer (e.g., there are no ‘larger household’, ‘smaller household’, ‘single household’ energy rates available to customers).

Credit Score

This is a number between 300-850 which gives an impression of a consumer’s creditworthiness. The higher the score, the better the impression you give.

Things that can lower credit score are:

  • applying for too many credit cards or loans within a short space of time
  • paying bills too late
  • not using a new credit card
  • cancelling credit cards
  • using your credit card too much
  • not repaying your credit card often
  • having too many accounts open
  • being in debt
  • receiving County Court Judgements (CCJs)

Things can raise your credit score are:

  • being on the electoral roll
  • ensuring there are no mistakes on your records (having the incorrect address on file can lower the score)
  • pay bills on time
  • living at one address for an extended period of time
  • keeping your credit utilisation below 25%

Demand Profile

This is a collection of data surrounding a business’s consumption rate. It helps a supplier gauge the amount of demand you’d require and can help provide an accurate contract for your realistic consumption.

Market

Brief Overview:

 BUSINESS ENERGYDOMESTIC ENERGY
Market Price Volatility  The market price changes: every half hour for electricity, and daily for gasThe market price changes: every half hour for electricity, and daily for gas.
Supplier Pricing        Supplier prices are based on the contemporary wholesale market i.e. what the market does today will reflect in the prices tomorrow  Prices are based on long-term, predictable forecasts, purchased in long-term blocks and thereby insulated from market movements (whether they be up or down)
Supplier Price Volatility      Larger customers during negotiations will see prices changing daily, SMEs weekly, sometimes more often in a particularly volatile market.  Domestic prices change once, maybe twice a year regardless of the underlying market price changes.    
Supplier Price Change Trends        The direction and magnitude of any change is entirely based on the suppliers’ approach to commercial risk and the profile of their customer bases. However, major changes in the underlying market price will see broadly similar directional movements across the marketAll suppliers move in the same direction, in unison, and by similar amounts.          
Meter Types            Businesses can have any number of higher capacity meters including: Standard 1 rate, Economy 7, Evening Weekend & Night Meter, Maximum Demand Meter, Seasonal Time of Day Meter (STOD), Half Hourly MeterA single, low-capacity meter either being: Standard 1 rate or Economy 7.      

Further Elaboration:

The Energy Price Cap

This limits the amount that suppliers can charge for their default gas and electricity tariffs. Many suppliers set their rates very near to the maximum rate.

The cap tends to increase after being reviewed twice a year. Many suppliers respond by increasing their prices accordingly.

Process

Brief Overview:

 BUSINESS ENERGY MARKETDOMESTIC ENERGY MARKET
Industry processesThe successful transfer of supply is subject to objections from the outgoing supplier for debt, the pre-existence of a fixed term contract, complex metering, or any other ‘reasonable’ supplier contract clause.Transfer between suppliers can only be prevented by excessive debt to the outgoing supplier which cannot reasonably be paid under the customer’s existing payment terms
Essential information needed to obtain a quoteElectricity S Number (providing both location and metering details) or Gas MPRN/Contract End Date/Consumption/Current Supplier/Credit ScorePostcode
Online Price ComparisonNot possible due to the bespoke nature of business energy prices for larger energy users. Single SME sites can be priced online.Regular feature of the market due to ‘simple’ blanket pricing
Dual FuelDual Fuel options do not exist in the business energy market, it is significantly cheaper to enter separate contracts for each energy sourceDual Fuel is a common feature of the domestic market including ‘discount’ as suppliers chase the ‘predictable’ volume that domestic customers bring

Further Elaboration:

Dual Fuel

This means you get your gas and your electricity from the same provider. It is often considered more convenient and is often cheaper than using two separate providers.

For more information about this post and how Energy Solutions can help with your Electricity, Gas, or Water, click on the links, or check out the contact details at the bottom of the page.