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Domestic vs Business Energy

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 MarketDomestic Energy Market
Cooling Off PeriodThese 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 termsThese are a regular feature in market in order to protect unsuspecting households from entering disadvantageous contracts
Contract LengthsAnything from 28 days to 5 yearsInvariably 28 days with some longer term ‘fixes’
Contract Exit Options (Termination)No option to exit a fixed term, fixed price dealOpportunity to leave after 28 days or pay a nominal fee to leave a longer term ‘fix’
Contract termsPrices are fixed for the duration of the contractPrices are variable except where a fixed deal is chosen
Opportunity to strike a dealVery 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 dealsLimited, 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 processesSuccessful 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 clauseTransfer can only be prevented by excessive debt which cannot reasonably be paid under the customer’s existing payment terms
Essential information to derive 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 pricesRegular 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