Microbusinesses & Energy Brokers

Micro what?

From long-established family businesses to the new opportunity or career changing entrepreneurial ‘punt’; if you don’t run your own, you will certainly frequent several small businesses a month (if not each week). The ‘infant Hercules’ microbusiness community continues to blossom at pace and has quickly become a key player within the UK economy. Many individuals continue to see the appeal of becoming their own boss despite the commercial challenges caused by Coronavirus and national lockdown.

Public loyalty in small businesses continues to grow with villages, towns and cities alike pushing a ‘shop local’ ethos to protect the local business community, whilst consumers are also looking for the interaction and personal touch that you just can’t get from an online shopping basket or an Amazon delivery.

What is a Microbusiness?

In the UK energy market, Ofgem define a microbusiness as, any small business with less than 10 employees, turnover less than 2m Euros, or energy use less than 293,000 kwh gas or 100,000 kwh electricity per year. In real terms that equates to any business with an annual energy bill of £10,000-£12,000 per fuel. Ofgem have been on a journey since the early 2010s to develop the regulatory landscape in a bid to further enhance the protections for this blossoming market, here is a whistle-stop overview of some of the main changes implemented so far:

The most recent changes will further align the rights and protections of microbusinesses with general ‘domestic’ consumers with Ofgem keen to drive up consumer engagement in this space and educating and encouraging microbusiness consumers to shop around more frequently for a competitive deal.

What  is an energy broker?

A key differentiator from the domestic market is the addition of the energy broker, with two out of three microbusinesses using a broker when choosing their next energy contract.

Brokers work with consumers on a contractual basis to search the market, sourcing competitive prices and contracts. Some brokers will also assist with value added consultative services such as data analysis, energy efficiency support or procuring other non-energy related products.

There are numerous end-benefits to a consumer utilising the services of a broker in general; they will take the strain away from an already busy small business owner by taking the time to review and negotiate contracts. They will also have commercial relationships with several suppliers, meaning that they really push for strong prices, and they can take that time to scrutinise and analyse bills and consumption. Time is a precious commodity to any business owner, so not having to take time out to shop around, negotiate or review energy terms may be worth its weight in gold for some small businesses.

Steps to improve the market

Ofgem proposals plan to tackle unscrupulous energy brokers so that all microbusinesses can get a better deal. Ofgem hopes to root out these “poor practices” by implementing measures to make brokers more transparent and accountable for their actions and practices. It is generally agreed that most microbusiness consumers continue to benefit from the services of reputable brokerages, and that these tighter measures will drive consistency, align broker practice, and see any ‘bad apples’ fall from the tree and exit the marketplace.

Ofgem’s proposals cover 6 key areas of change for suppliers and brokers:

  • clearer terms – making sure small businesses receive key information before they sign a contract
  • improved transparency – making sure the brokerage commission/cost of the contract is clearly displayed
  • broker dispute resolution – energy suppliers will only be allowed to work with brokers that are signed up to dispute resolution schemes
  • a chance to ‘cool-off’ – energy contracts will include a 14-day cooling-off period, meaning small business owners will have the opportunity to review and cancel an agreement
  • notice not required – small businesses won’t need to give notice if they want to switch energy supplier
  • improving awareness – Ofgem and Citizens Advice will publish new guidance for microbusinesses, to increase awareness of how the market works and their rights

We have seen similar regulatory interventions in other areas such as the Financial Services industry, however the financial world is further empowered by any broker falling under the direct remit and scrutiny of the Financial Conduct Authority. Presently the energy broker market is unregulated, however this has not gone unnoticed by BEIS, who in December 2020 proposed in their Energy White Paper ‘Powering our Net Zero Future’ their plans to consult on regulating third parties such as energy brokers and price comparison websites.

Until a decision is made on direct regulation, Ofgem have no option but to indirectly regulate the broker through its commercial relationship with suppliers. The jury is out as to whether this strategy can deliver on the outcomes Ofgem are aiming to deliver, or whether it may lead to further cost and complexity for not just brokers and suppliers, but also for the very consumers Ofgem are seeking to protect.

Niccolo & brokers

Without question, Niccolo continues to see the value to all parties in continuing to work with energy brokers, we feel that brokers add value to the customer experience and continue to drive engagement in the energy market. We will carry on collaborating and communicating with trusted brokers, customers, and Ofgem to ensure we continue to offer a great energy deal, a broad and value adding product offering and a consistently high level of service to all our valued customers.