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Jun 24, 2020

A lack of trust in the energy sector and a perceived hassle of switching is holding businesses back from switching – despite obvious cash savings.

Whether your business has been adversely affected by the coronavirus pandemic or is flourishing from it, cash savings are always welcome. It makes no sense at all to pay more for something you can get cheaper elsewhere.

And yet, hundreds of thousands of businesses are suffering from overpaying for the one thing they need to power their operation: energy.

It is estimated that around 50% of businesses never switch their supplier – despite utility companies advertising lower rates to them.

Why the strange behaviour?

EnergyBillKill conducted a study with Censuswide to get to the bottom of this strange behaviour and found an alarming trend of distrust in the energy sector.

35% of SME and micro business owners said they don’t trust energy suppliers, and 26% said they don’t trust brokers. The bottom line? Business owners fear a raw deal.

And it gets worse. 51% of respondents said that they consider switching to be too complicated. Actually, it’s even worse than that – those 51% said they believe switching is harder than pulling teeth or firing people etc…

Pulling teeth! Firing people!

This is an incredible revelation. Not only do business owners trust energy suppliers and brokers as far as they could throw them, but even if they did have trust in them, they think switching is too complicated anyway. Yikes.

One can definitely blame the energy market for fostering this level of resentment and distrust. The amount of scandals over the years and a lack of clarity on prices (as well as ridiculous price hikes and yo-yoing) has burned bridges and left business owners with no desire to switch whatsoever. Most are happy to stay put.

But you should switch – trust or no trust. Here’s why:

  1. You’ll save a heap of cash

Switching business energy is one of those rare cash saving opportunities that’s a bit of a no-brainer. The cash savings can be substantial — and especially if your business is growing and planning to use more energy in the future.

EnergyBillKill’s previously linked study, conducted by Censuswide in 2020, sheds light on what you can expect to save.

Of the 500 businesses that took part in the study, 60% of them saved up to 30% on their annual energy bill when they switched. Another 20% saved up to 10%.

These are substantial savings. It is estimated that the average electricity use for a small business is 20,000 kWh per year. The average electricity price per kWh for a small business is 13.98p with a 26.83p standing charge. This means an annual electricity bill of £2,894.

If we say it’s realistic to save 10%, then using the example above that business would save £289.40 per year on their electricity bill by switching. If we bump it to 15%, the saving jumps to £484.10 – and the savings get bigger the more electricity you use.

Here’s another tip – company directors can save money on their home energy bill if they qualify as a microbusiness consumer. This would allow them to switch from a domestic tariff to a cheaper business tariff at home. It’s realistic for a microbusiness consumer (someone working from home or running a business from home) to save £100 on their annual energy bill because business energy tariffs are cheaper.

  1. It’s really easy to switch

Despite what 51% of business owners think, switching business energy isn’t difficult at all.

The only fly in the ointment is that unlike domestic energy tariffs, until recently you could not easily compare & switch business energy online. Many businesses end up using telephone brokers. This is the main reason why some business owners think the process is too complicated to bother with.

The solution? Do your homework online if possible.

The business should always check with its current provider. That is the starting point.

What is the renewal rate for the existing energy contract? Once the business knows this information, start the research online. There are three ways that businesses can obtain business energy prices: (1) directly from energy suppliers; (2) price comparison sites and (3) brokers. Energy companies will often make special, lower prices, available to comparison sites and brokers.

Brokers will charge commissions that are hidden. The way most energy brokers get paid is via commission, usually by an uplift in your unit rates (basically, their commission is built into your kWh unit rate price, such as .40 p/kWh). You won’t notice it because it will be built into your energy bill.

Broker fees vary – some can take as much as 10% of the cost of your energy, which means if your annual electricity bill is £8k, your broker could take £800. You should shop around and clarify fees with brokers so you get the best deal.

There are a lot of scandals around many brokers overcharging small businesses. Here’s a terrifying Citizens Advice study in 2019 that estimated nearly 1mn+ small businesses are in danger of being ripped off.

There are very few price comparison sites for business energy. It is always important to know why fees they charge as well. Here is a handy guide on fees from Ofgem.

At the end of the day, a business should go for the lowest possible energy price, because energy is a commodity. OfGem, the regulator, ensures that your energy supply will not be interrupted, even if the energy company goes out of business.

The bottom line

Would you pay more for something you can get cheaper elsewhere?

Whether it’s a car, smartphone or energy, the answer is probably no.

There are plenty of ways for a business to reduce costs but switching energy has to be up there with one of the easiest. All you need is an energy broker to find you a great deal and your new supplier will handle the switch for you.

It’s no skin off your back and you’ll save money. Why not give it a go?