Assessing the Energy Market: Does it Work for Small Businesses?

May 02, 2018 | Alexandra Degala

The energy market is dynamic. It experiences many changes. Recent happenings in the energy market indicated a significant discrepancy in the prices of electricity that businesses pay for. An assessment conducted by Ofgem discovered that small enterprises pay much more for their energy use than large enterprises.

Small and medium enterprises pay, on average, 50% more than large companies when it comes to energy expenses. SMEs strive for stability, and they are susceptible to the belief that hiring only the biggest energy suppliers gives them that stability. Unlike small businesses, large businesses look outside the top energy suppliers and get their energy supply from small energy suppliers. Many new energy suppliers have emerged in recent years, but small businesses have yet to shift and find new suppliers. Here are the two main reasons why:

  • They have little bargaining power. Small and medium businesses have a disadvantage when it comes to getting good deals because they lack the bargaining power of large companies. This bargaining power is supposed to allow them to get bigger agreements from suppliers. The energy requirements of SMEs are lower thus their words don’t have the same weight as bigger enterprises, leaving them with no choice but to accept the offered prices.

  • They are locked in by their contract. One of the obstacles that hinder small businesses from switching is they are still locked in by a fixed purchasing contract. This type of contract sets the price of electricity for at least 3-5 years. Some get it for a longer duration because it provides greater budget security.There are also exit fees to consider when a company decides to shift.

In the past two years or so, an increase in the engagement of small businesses to the energy market has been observed. These interactions range from comparing prices and checking deals to shifting suppliers. Most small businesses are encouraged to engage with the energy market as they near the end of their contract.

 

What are the indicators that the energy market is working for small businesses?

To identify whether the energy market has become more accommodating of small businesses, three factors must be met.

Lower bills - Small businesses tend to receive deals with higher tariffs compared to bigtime customers.This is despite big consumers being more able to pay for higher tariffs. Though small businesses consume less, they pay more regarding price per unit energy. Thus, they pay more compared to bigger companies relative to their consumption.

Lower environmental impacts - Generating electricity can be harmful to the environment, especially if it is sourced from coal and other fossil fuels. Small businesses also want to shift to environment-friendly alternatives because it will draw in more savings. Gaining new clients is also a big possibility because consumers nowadays have become more conscious of their carbon footprints.

Improved security - A stable supply of energy must be available to maintain smooth business operations. Consumers have in fact paid more than what was necessary to ensure that supplies do not run out. The energy system must be prepared for surges in demand so that price spikes can be avoided.

 


WeCompete Energy has helped thousands of businesses find the most cost-effective energy purchasing deals in the market. We recognize the difficulty of maneuvering in the energy market as a small business owner. That’s where we come in handy - as experts in the industry; you can tap us to locate the best energy deals for your needs. You can call us at +1 (844) 937-7727 or send us an email at contact@wecompeteenergy.com.