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EDF’s New Start Product Review

Energy revolution for start-up businesses?

Late last year EDF became the first supplier to launch a dedicated tariff for start-ups businesses, called New Start. EDF says it “offers the energy industry’s most flexible and simple agreement to help new businesses succeed”.

All of us have at some time been a start up and we all know the difficulties attached to those early months and years so this product could either prove a god send or hot air. Time to find out.

So what are the key features?

1. It’s a short-term contract

The contract lasts for just 6-9 months, rather than the usual minimum contract period12 months. EDF says that this will “help business owners by not locking them into a long-term contract at a time when they’re still learning about their energy requirements at their new premises and how best to manage their energy.”

Our view: This seems a reasonable approach but as any new business owner will tell you those early months go by in a flash, it’s difficult therefore to perceive a benefit of having a short term contract unless it carries punitive rates or a minimum term. That leads us to its next feature.

2. There are no exit fees

There are no exit fees, so if you want to leave at any point in your contract, you can.

Our view: This is great news, the short form of the contract still doesn’t make total sense however if it is so easy to exit the contract. We can only assume there will be a premium to pay in the cost of the energy supplied.

3. It has a low standing charge

EDF says it has reduced the standing charge on the tariff by 80% to 5p a day. It also promises ‘competitive’ contract rates.

Our view: The standing charge commitment is a strong one, especially as in the early days, businesses being smaller will tend to utilise lower energy volumes and as such standing charge plays an increasingly dominant role in the overall costs at this point. The fact however that EDF has not made the same commitment on contract unit rates tends to suggest that this is where the catch may come, if indeed it does at all. This would also explain why the contract is artificially sort and easy to exit. Where EDF have promised ‘competitive’ rates this needs to be viewed in the context of what a new business with no credit history is likely to be paying on a standard supplier deal. It will come as no surprise that such a business will be faced with a premium priced contract because of the perceived credit risk their business brings. The fact however that EDF promise to be competitive in this area and the short contract at least means that once a business has built its credit score through the early months the opportunity is there to secure a more suitable long term rate.

4. You won’t get rolled.

When the contract ends, instead of being rolled over to a new 12-month contract (which is still standard industry practice for many suppliers outside the Big 6) you will go onto a variable contract that you can exit at any time.

Our view: This is great news, allied to the ability to exit the existing contract at any point gives real flexibility to a business to secure the energy deal that best suits their needs at the time that suits them.

So what’s our overall verdict on EDF’s new start product?

It’s an innovative idea and EDF is to be applauded for trying something new to help start-ups.

The short contract should prove appealing to a business that’s just starting up and isn’t sure about what their energy needs will be.

It’s also good that there’s no rollover – our research has found that 68% of businesses think it’s an unfair practice.

However there are some flaws; a reduced standing charge or daily charge might sound very attractive, but businesses need to remember that it only makes up a proportion of their total bill. The price you pay for every unit of electricity or gas used is just as important, maybe even more so, especially if you use a lot of energy, so you should be sure to check how what EDF is offering compares to the rest of the market.

Also it looks like this tariff won’t be available through business energy brokers and price comparison sites. A large number of businesses use brokers to find their new energy contract, so it’s disappointing that some businesses will potentially miss out on this tariff as a result of EDF’s decision.

Overall if you are a start up business it would be sensible to get a quote from EDF and then to contact a broker, such as us at Business Juice, so we can check the market and see how the deal really stacks up.

Critically we have a number of low credit products that don’t carry the hefty premium that EDF’s may. In addition with the advent of the move away from rollover contracts, the sort of freedom of movement that the new start product promises can be found elsewhere.

Ultimately in the early days your decision is very likely to be focused on price, as such it will pay to get Business Juice to shop around on your behalf and if EDFs new start product proves the best for your business we’ll be happy to tell you and let you take advantage of what could in principle be a great new product in the market.

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