Tuesday 1st of September 2020 | Posted In: Buy and Sell, Buying energy

Is a cheap energy price really a fair one?

Finding time to check if the contract you are signing really is the best deal can be difficult while running your business. 

The energy contract market is filled with a mix of suppliers and energy brokers all trying to convince you that their contract is the best option for you. However, how can you tell if their cheap prices are as good as they sound? We are sorry to tell you that often, it is not and here’s why.

Is the contract 'fully fixed'?
Often suppliers and brokers can present prices to you that look incredibly competitive, claiming that they are fixed but when you drill down to the detail, they are not as good as they first appear. We speak to farmers and growers daily and advise that if a contract looks too good to be true, it probably is.

Third-party charges
Third-party charges make up around 60% of an energy bill, with the other 40% being the cost of the energy. Third-party charges are made up of government levies, costs for maintaining the National Grid and costs of transportation of the energy. Occasionally brokers and suppliers don’t include or fully fix these costs meaning they can either bill you separately on your invoices or that they can reopen your contract at a later date to charge you. Initially, your contract may look competitive but could cost you a lot more in the long run.

Inaccurate third-party charges forecasting
For any supplier offering fixed contracts, they must forecast what the third-party charges might be for the duration of the contract as they’re not published in advance. If your supplier is newer or a smaller supplier, they may not have an experienced forecasting department. This could mean that they get hit with a larger invoice than expected from the third party resulting in the cost being passed through to you, the consumer, or them going out of business and having to sell your contract on to another supplier on less favourable rates.

Low prices can equal poor service
Occasionally when new suppliers enter the market, they hire less experienced customer service staff than the more established suppliers. We often find that they can sell energy cheaply initially due to lower overheads. However, once their portfolio has grown, they find it difficult to manage customer queries. Over the years, many newer and smaller suppliers have been faced with acquisition freezes and fines by Ofgem due to poor service. This has seen some of them going out of business and their customers being sold on to big six suppliers on less favourable rates.

How can you protect yourself?

Due diligence
Do some checks on the supplier and/or energy broker before making any decisions and question what’s included/omitted from the price. If they cannot tell you in detail, then it’s probably not worth risking. All suppliers and brokers should know what they’re selling and should be transparent about what it includes.

Contact NFU Energy for impartial comparisons
We compare thousands of energy contracts every month. Which enables us to offer energy contracts that are secure, sense checked and with reputable suppliers. However, we will also be able to give you an impartial view on another offer you have received. If we think there’s something not quite right about the contract you’ve been offered, we will let you know.

For more information, give the team a call on 024 7669 8885.