Commercial vs Domestic Energy…

Whether you’re purchasing energy for a commercial enterprise or your home, there’s every chance that you’re keeping tabs on the market, reading articles online or listening to the latest news updates, let’s be honest, the price of gas and electricity is a hot topic currently, however with it being a volatile and at times unpredictable market, it can be tough to decipher between scare mongering and factual information and even then, once you’ve managed to do that, you’ll then have to figure out how it effects you personally…

For example… recently, Energy supplier Ovo announced their first deal for customers that is indeed cheaper than the government’s cap on household bills. They will now be offering a fixed 12-month tariff of £2,275 for their existing customers, at a time when the government is limiting typical household energy bills to £2,500, whilst this is obviously positive news for the domestic energy market, some of the advice out there can be misleading, for example there has been a lot of noise from some quarters advising domestic users to hold off from negotiating new rates and contracts as they’re predicting the market will continue to fall and other suppliers will follow suit with new offers.

It’s imperative that commercial users don’t get caught up in the domestic trends as the two are very different entities, for example, the graph below outlines the commercial markets current trend. As you can see rates have fallen drastically since the energy crisis but there are signs that the cycle could be about to start again as the market begins to increase as we move into the Summer. This is led by nervousness surrounding the UK’s ability to meet gas demand during a cold winter. As the last two have been extremely mild, the market still has no evidence as to how the UK would cope (in the new scarcer energy world) to a prolonged cold snap.

Based on how the commercial market has changed, there’s potential evidence out there to suggest that the commercial market is a step ahead of the domestic market and could follow the same path. Our advice to commercial buyers within 12 months of renewal currently would be to engage with an expert Energy Consultant who can analyse your rates, usage and business needs to put a cost effective plan of action in place to ensure business sustainability.

This is just one example from this week as to how the difference between commercial and domestic energy is huge, below we take a look in more detail as to why and how…

The Difference Between Commercial And Domestic Energy…

When listening to the media, you’ll find that domestic energy updates will dominate the headlines over commercial, which can lead to people, including business owners and decision makers, believing (or assuming) that both energy markets  – the domestic and non-domestic – operate in the same way. This couldn’t be any further from the truth… and understanding this is crucial when negotiating the best possible energy deal for your business.

Pricing

As a rule of thumb, business energy is traditionally cheaper when compared to domestic energy, this is predominantly due to the higher volumes involved and the approach of bespoke pricing, for example, not every business is the same, therefore suppliers approach each business as a unique case and offer tailored solutions and tariffs dependant on your usage and business requirements.

Businesses also have the option of a flexible purchasing/procurement strategy whereas domestic energy tends to be more expensive due to a one size fits all approach.

When pricing commercial energy, suppliers take into consideration things like… consumption, credit score, location, business type, contract length and payment method whereas for commercial users it’s far less complex with the two main check points being generic to your neighbourhood and payment method.

Although businesses do tend to benefit from cheaper rates, they are of course more open to additional charges & VAT such as:

. Subject to 20% VAT except where an exemption is in place

. Subject to Climate Change Levy, Renewables Obligation and FIT 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.

Contracts

Usually, domestic energy contracts are on a rolling term with no definitive end date. This means that residential customers can switch their supplier at any time, however, the unit rate can fluctuate month on month. There are rare instances when fixed term contracts are offered in domestic settings, but these contracts are generally easy to get out of for a nominal cancellation fee, it’s always best to check for better deals every 12 months or so. Before you go ahead with it, check if your current tariff has any ‘exit fees’ and how much they are.

Business contracts can be mostly on a fixed term, usually a 1 – 5 year contract. The unit rate will stay constant at the agreed price, even if the market price increases or decreases.

Meter Type

Businesses will more than likely have a much larger energy consumption compared to the average households, therefore energy suppliers monitor energy usage in a different way.

Electricity meters will have a unique meter profile that corresponds to the first two digits of the meter reference number, this will unltimately impact on how your meter is read by the energy supplier. Business meter profiles will always be 00, 03 or 04, where domestic will either be 01 or 02.

Your meter type will then determine what contract types are available to you.

If your commercial energy contracts are giving you a headache or if you’d just like some advice, get in touch with one of our expert Energy Consultants today.