Small Businesses Could Be Paying Up to £1,100 Too Much For Energy

Business energy customers are potentially paying up to £1,100 too much for their energy each year due to restrictive contracts and a failure to shop around, Bulb Energy has claimed.

The renewable supplier found that the UK’s small businesses pay on average of £289 per year too much for their electricity—the equivalent of 12% of their annual bill. But in some cases, the cost of complacency about energy is even higher, with some businesses paying 50% more than they should, or £1,100 too much a year.

SMEs are overpaying for energy because inflexible business energy tariffs and an opaque, consolidated market discourage them from switching supplier, Bulb says.

Unlike domestic energy customers, business customers on fixed tariffs often pay for the entire length of the contract up front. They’re also often hit with hefty early termination fees if they try to switch away. These high costs discourage them from seeking out deals elsewhere.  

But some contracts are even more restrictive, with one from an electricity supplier stating that early termination isn’t allowed and that the supplier reserves the right to block a firm from moving to a new supplier.

When their fixed-term contract expires, business energy customers are also often quietly rolled over onto variable contracts, with prices that can be more than twice what they were paying before.

And when businesses do attempt to find a new tariff, they’re frequently overwhelmed by options, albeit largely from the same eight suppliers which hold an 80% share of the market. 

Each major energy supplier offers companies, on average, 30 energy tariffs to choose from, Bulb found. Firms seeking out quotes can thus see up to 77 different deals. While having options may be good, some of these tariffs are nearly indistinguishable. Bulb found that one supplier offers eight tariffs all named “Fixed for Business,” each with a different price calculation.

It’s also tricky to figure out exactly how much each deal will cost. The Competition and Market Authority (CMA) previously found “a general lack of price transparency concerning the tariffs that are available to microbusinesses.” Suppliers, with a captive audience of businesses, also have “incentives not to give non-domestic customers the best possible deals,” the watchdog discovered.

Bulb said business energy customers as being treated unfairly, particularly as they struggle to survive during the coronavirus crisis.

Dan Sheldon, head of Bulb’s business energy market, said: “Small businesses have had a tough time during the pandemic and now face the challenge of operating under social distancing measures.

“We think it's wrong that some energy suppliers are locking businesses into unfair and expensive deals, especially when we know that switching could lead to valuable savings on average of £289 a year – 12 per cent of a small business's annual energy spend.

“The last thing entrepreneurs need now is more challenges and costs as Britain gets working again. Businesses can and should demand better—by voting with their feet.”

He said now was a crucial time for businesses to consider their budgets and environmental impact and suggested Bulb could help SMEs cut their costs and carbon emissions.

Bulb is promoting its own services, but the call for SMEs to switch energy supplier has been reiterated by the Federation of Small Businesses, which has said small enterprises can find substantial savings by moving to a new energy tariff.