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:
- Contracts
- Prices
- Markets
- Processes
Between the commercial and domestic markets.
Contracts
A Brief Overview:
| BUSINESS ENERGY MARKET | DOMESTIC ENERGY MARKET | |
| Cooling Off Period | These 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 require | These are a regular feature in the market. They offer protection for households who may enter disadvantageous or unclear contracts. |
| Contract Lengths | Anything from 28 days to 5 years | Always 28 days with some longer term ‘fixes’ |
| Contract Exit/Termination Options | There is no option to exit from a fixed term, fixed price deal | Opportunity 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 duration | Prices are variable except where a fixed deal is chosen |
| ‘Striking a Deal’ | Very high – there are options to negotiate and strike an advantageous deal | Limited – 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 ENERGY | DOMESTIC ENERGY | |
| Price | These 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 approach | Prices are higher than business energy ones due to a ‘one size fits all’ approach |
| Pricing Methodology | Bespoke for each business based on set criteria | Generic |
| Pricing Criteria | Dependent on your consumption, credit score, location, business type, demand profile, contract length and payment method | Generic to your neighbourhood and payment method |
| VAT Liability | 20% VAT except where an exemption is in place | 5% VAT |
| Additional Levies | Business are liable for the Climate Change Levy, Renewables Obligation and FIT charges | Domestic consumers are not subject to Climate Change Levy |
| Price Periods | Can be priced from any two points over the 5-year period | Can 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 ENERGY | DOMESTIC ENERGY | |
| Market Price Volatility | The market price changes: every half hour for electricity, and daily for gas | The 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 market | All 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 Meter | A 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 MARKET | DOMESTIC ENERGY MARKET | |
| Industry processes | The 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 quote | Electricity S Number (providing both location and metering details) or Gas MPRN/Contract End Date/Consumption/Current Supplier/Credit Score | Postcode |
| Online Price Comparison | Not 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 Fuel | Dual Fuel options do not exist in the business energy market, it is significantly cheaper to enter separate contracts for each energy source | Dual 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.