Do I Need A Business Energy Broker?
When running a small or micro business, you may not have the capacity to find the best business energy deals yourself. Energy brokers can help you with this process, potentially saving you both time and money. Find out everything you need to know about business energy brokers below.
Thanks to their close relationships with business energy suppliers, energy brokers can potentially help negotiate a better contract than if you approach a provider directly yourself.
And they are a commonly used tool by Britain’s smallest businesses. An investigation by the Office of Gas and Electricity Markets (Ofgem) in 2020 found that around two-thirds of the country’s micro businesses (entities of nine employees or fewer) go through an energy broker, energy consultant or other third party intermediary (TPI) when choosing their business energy.
But do you need to use one as a small or micro business? Below, we take a look at what services an energy broker actually offers, how they make their money, and the benefits and disadvantages of using them to secure your business energy contract.
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What does an energy broker do?
While, broadly speaking, a business energy broker can help you get a better deal for your gas and electricity, how they do this covers a range of activities. This can include:
- Negotiating your contract. Your energy broker can negotiate which tariff you are put on, and the unit cost of a kilowatt per hour (kWh), with the aim of getting the most appropriate deal for your business.
- Market comparison. Energy brokers can obtain quotes from a number of business energy suppliers at once, saving you time while trying to seek the most suitable option for your business.
- Managing your switch. If you use an energy broker to switch suppliers, they can carry out the process for you, including arranging the start date and checking that your billing details are correct.
- Helping with your contract renewal. Similarly, energy brokers can remind you when your contract is up for renewal and help you decide on the best course of action for your business.
- Resolving bill disputes. If you have used an energy broker to secure your contract, they can work on your behalf, helping to sort out any billing disputes or discrepancies.
- Cost recovery. If you have been charged for services you don’t use, an energy broker can help get your money back.
- Business energy management advice. If you need any additional support, including tips on improving your energy efficiency and reducing consumption, your energy broker can be of assistance.
To permit an energy broker to do all the above, you will need to sign a ‘Letter of Authority’. This document will specify what you are happy for the energy broker to carry out, and which information they can collect.
However, the wording of this letter should not:
- Legally bind you to use the broker’s services.
- Give the broker exclusivity.
- Lock you into any business energy deals.
- Allow the broker to sign contracts on your behalf.
How does an energy broker make money?
The most common way for energy brokers to make money is through commission. Energy brokers will negotiate this with the business energy supplier when trying to obtain your contract.
The commission is normally calculated at a unit rate per kilowatt hour, and then added to the kWh unit cost of actually using your gas or electricity as set by your supplier. The more business energy you use, the greater the energy broker’s commission will be. Many business owners mistakenly believe they are not paying any broker commission, because it doesn’t appear as a separate charge on their energy bill.
Per kWh commission is not the only way energy brokers can be paid, however. Some brokers will take a share of savings payment. This is when the broker will be paid a percentage of the amount you saved on your energy bill by using their services. You should make sure you confirm how your broker is calculating these ‘savings’ before agreeing to this payment method.
Another, more straightforward, form of payment is an upfront invoice. This is where you and your energy broker agree on a fixed monthly fee for using their services.
With each payment type, it is of the utmost importance to get a full written disclosure of how your energy broker is earning money from your contract, including all commission, charges and fixed fees.
Some rogue energy brokers will use the sector’s lack of official regulation to take advantage of their customers by hiding commissions in their customers’ contracts without informing them. If you did not receive a full written disclosure from your broker, or felt pushed into a deal by your broker without fully understanding its terms and conditions, you may be eligible to make a business energy claim on the grounds that you were mis-sold the contract.
Pros and cons of using a business energy broker
It can make sense as a small or micro business to go through an energy broker to secure your business gas and electricity contracts. Not least because you are unlikely to have a team large enough to dedicate significant time to sorting out your utilities. Using an energy broker can:
- Save you money. A good energy broker will try to help you find the best deal, and the most suitable rates, for your business, based on your individual needs.
- Save you time. Energy brokers will take over many of the time-consuming aspects of your business energy search, including comparing multiple suppliers and processing any switches or renewals.
- Help manage your contracts. Not only will an energy broker remind you that your contract is coming up, they can advise you on whether to stick with the same supplier and negotiate a new deal, or switch to a different provider.
- Help your knowledge of the market. If you have any other questions about business energy, including your efficiency and consumption, energy brokers can help find the right answer for your business.
However, not all energy brokers are created equal. You should be aware that:
- Using an energy broker is not a free service. Even if your bill doesn’t show any costs, you will be paying some form of commission.
- The energy broker market lacks official regulation.
- Some unscrupulous brokers may hide commissions, or mis-sell you business energy contracts, which benefit their financial interests more than your own.
If looking to use the services of an energy broker, you should always thoroughly read their customer reviews, and search for any business energy claims brought against them in the past few years.
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Connor is a writer and spokesperson for NerdWallet. Previously at Spreadex, his market commentary has been quoted in the likes of the BBC, The Guardian, Evening Standard, Reuters and The Independent. Read more