Why is Business Energy Different?
In the battle for headlines, domestic energy wins hands down, but the bigger commercial impact and greater potential savings all sit in the business energy market.
Of course, businesses don’t vote and so most of the media and politicians will always take the residential perspective above that of the business every time.
This is understandable however it can lead people, including businesses, to believe that both energy markets – the domestic and non-domestic – operate in the same way.
They do not, and understanding this is crucial to understanding how to strike the best possible energy deal for your business.
Below is our quick guide to the main points of differential between the two markets.
Comparison: Business vs Domestic Energy
Contracts
| Business Energy Market | Domestic Energy Market | |
| Cooling Off Period | These are not a feature of the market as businesses are viewed as commercially ‘able’ to enter contracts willingly and in the full knowledge of the terms | These are a regular feature in market in order to protect unsuspecting households from entering disadvantageous contracts |
| Contract Lengths | Anything from 28 days to 5 years | Invariably 28 days with some longer term ‘fixes’ |
| Contract Exit Options (Termination) | No option to exit a fixed term, fixed price deal | Opportunity to leave after 28 days or pay a nominal fee to leave a longer term ‘fix’ |
| Contract terms | Prices are fixed for the duration of the contract | Prices are variable except where a fixed deal is chosen |
| Opportunity to strike a deal | Very high, the nature of pricing in the business energy market means that even in a rising market there are opportunities to strike advantageous and often long term beneficial deals | Limited, aside from choosing ‘fixed’ contract options for security, the ability to strike an advantageous, market reflective price does not exist |
Pricing
| Business Energy | Domestic Energy | |
| Price | Lower than domestic energy due to the higher volumes involved and the approach of bespoke pricing | Higher than business energy 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 | Subject to 20% except where an exemption is in place | Subject to 5% VAT |
| Additional Levies | Subject to Climate Change Levy, Renewables Obligation and FIT charges | Not subject to Climate Change Levy |
| Price Periods | Can be priced at any point in time to any other point in time over the forthcoming 5 year period | Can only price be priced from ‘today’ |
| 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 |
Market
| Business Energy | Domestic Energy | |
| Market Price Volatility | The underlying market price changes every half hour for electricity and daily for gas | The underlying 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’ | Based on long term, predictable forecasts, purchased in long term blocks and thereby insulated from market movements up or down |
| Supplier Price Volatility | Larger customers during negotiations will see prices changing daily, SMEs weekly, sometimes more often in a particularly peaky 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. Major changes in the underlying market price however will see broadly similar directional movements. | All suppliers move in the same direction in unison and by similar magnitudes |
| Meter Types | Businesses can have any number of higher capacity meters including:Standard 1 rateEconomy 7Evening Weekend & Night MeterMaximum Demand MeterSeasonal Time of Day Meter (STOD) up to 66 ratesHalf Hourly Meter | A single, low capacity meter either being:Standard 1 rate, orEconomy 7 |
Process
| Business Energy Market | Domestic Energy Market | |
| Industry processes | Successful transfer of supply is subject to objections for debt, the pre-existence of a fixed term contract, complex metering or any other ‘reasonable’ supplier contract clause | Transfer can only be prevented by excessive debt which cannot reasonably be paid under the customer’s existing payment terms |
| Essential information to derive 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 | 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 |
If you’re after a more in depth look at why you should compare business energy prices, see this guide.