Don’t Wait For Business Electricity Prices to Drop

Despite the colossal drop in wholesale energy costs since their peak a year ago, you’d be fooled into thinking that the UK’s energy suppliers are about to start offering cheap business electricity in time for the winter. Ofgem, the energy industry regulator has just received this in writing following an exchange of letters between the bosses of the Big 6 business electricity providers to point out that the continued high prices don't seem justified and demand an explanation why they weren't cutting their commercial energy prices. None of them said they were about to drop prices and one or two even suggested they might be going up.

The reasons, they explained, are because wholesale energy costs only account for about two-thirds of bills and the additional costs that go into business electricity tariffs – eg transport and environmental measures, have risen sharply - by as much as 44%. The consumer body that represents the commercial energy interests of small businesses, Consumer Focus, naturally disagrees and is fuelling public anger by claiming that energy suppliers do have scope to cut prices this year despite volatile wholesale markets and environmental costs. "There’s a grim predictability about Britain’s energy suppliers. In spite of increased margins and lower wholesale gas prices, there is the inevitable talk of higher bills," says Robert Hammond, energy expert at Consumer Focus. If none of them reduce prices, this will make a mockery of plans to single out the companies that refuse to adjust tariffs as they will all have to be named-and-shamed!

Basically if you are a business and waiting for your supplier to miraculously drop business electricity costs… then don’t. Here are three common sense reasons why and some simple advice on how you can take the power back into your hands to keep a lid on your energy costs.

1. Firstly, most businesses are on fixed commercial electricity tariffs so anything you read in the press about price cuts won’t really affect you as a business. It’ll be a token gesture towards domestic customers and your commercial energy rate won’t vary until it is up for renewal – on the one, two, three or even five year anniversary since you entered the initial agreement.

2. Secondly if your renewal date is approaching (and most businesses are on one year contracts so dig out the paperwork now and find out when it is) the likelihood of seeing a reduction is, frankly, remote. Renewal prices are typically higher than new customer prices by up to seven pence per unit because the suppliers are relying on your inertia to stay with them and keep paying the bills. They even have convenient ‘rollover’ contracts that (often unknowingly-to-you) tie your business in to this arrangement before you reach the end of your contract when you’d normally expect to carry out a business electricity price comparison.

3. Thirdly there is a growing body of evidence that suggest wholesale prices will start an upward trend again from their cyclical low, giving the suppliers an even more convincing argument to say ‘no’ to cuts.
Only this week, a seminar called “Energy Prices – will they have to go through the roof?” was being help by the gas trade association SBGI which says that huge amounts of funds need to be generated for future investment and that we are also entering an era of dependence on imported energy from potentially unreliable suppliers. The Energy Retailers' Association is already hinting at "a 50% chance of a big increase in gas prices for this winter". Furthermore, Andrew Sentance, a member of the Bank of England’s Monetary Policy Committee says the energy market was a prime candidate for providing the “next big global shock”, with energy price hikes likely to follow as global demand picks up.

So over to you as a business owner… the way for you to cut your electricity prices is not to wait for suppliers to pass on cheaper wholesale costs but to switch. As mentioned, the difference between the highest and lowest business electricity tariffs is seven pence per unit. With an average consumption among SMEs of 32,000 units, this is over two thousand pounds you could be giving your business electricity suppliers in unnecessary costs just by staying put. There are a number of other factors to take into consideration when comparing energy prices such as length of contract and consumption. Postcode, for example, can alter the rate you are charged by up to fifth.

Our Price Checker tool provides you with a good indication of how fairly you are being charged at present, but I cannot stress enough the importance of finding out when your contract due for renewal and what your renewal price is so that we can accurately compare it against the lowest available going forward. To find out how much you can save by switching, please get in touch and one of advisors will be happy to help.