Could we see collective energy switching for businesses?

Collective energy switching is set to become a reality for domestic customers, but what about for businesses?

Could collective eenrgy switching save businesses money? Image by antgirl via Flickr.

The big story on the domestic energy front this week has been collective energy switching. The new energy minister, Ed Davey, called Martin Lewis from consumer website Money Saving Expert, and asked him to launch a collective switching service. Meanwhile Which? launched a collective energy switching service of its own called the Big Switch, in partnership with 38 Degrees.

So what is collective switching? In a nutshell, it means people clubbing together and switching en masse, to take advantage of the better prices that the collective purchasing power of a group affords.

Is there something similar on the horizon for businesses? Well, it’s something we’ve looked at, but we came across a few potential difficulties.

Firstly, there’s the practical issue of contract end dates - in any group of businesses, the members aren’t going to have contracts that end on the same day, or even in the same month, which would make it very difficult to coordinate a collective switch.

Secondly, we think that you’d need about 50 small businesses to club together to make it workable. All these businesses would need to be credit checked, and some businesses would naturally have better credit than others, which could make it tough to get a deal for everyone.

Thirdly, the risk of dealing with a large group of small businesses could put off some energy suppliers when it comes to making a bid for their custom. Business energy suppliers buy the energy they will need as and when they sign new business customers. When dealing with a single business, they can make a reasonably good estimate of how much energy they’ll need to buy. An estimate won’t typically be accurate, but if it’s only out by a few hundred kilowatt hours each time, it’s not too much of an issue, but when you start scaling this up for a group of 50 businesses, the estimates would be far less accurate and the risk of ending up out of pocket would be multiplied.

Finally, billing lots of separate businesses acting a group has the potential to be a logistical nightmare, which not many suppliers are set up to deal with.

So in conclusion, we think that collective energy switching for businesses would be pretty difficult to turn into a reality - the business energy market is very different to the domestic market.

What do you think of collective energy switching? Is it something that you'd consider doing for your home? Would you like to see it for your business?