If you’re working with an energy broker, it should be straightforward to know how they’re paid, says Paul Garratt – energyTEAM’s head of operations.
It should be straightforward to determine how an energy broker is paid, right? Sadly this isn’t always the case.
According to a report by Cornwall Energy, businesses are often confused about exactly how and how much their broker is paid. Headline stats from the report include:
- 37% of businesses believe their broker is providing a free service
- 42% are unclear on how much they’re charged by their broker
- 38% of businesses don’t believe that charges made by brokers are easy to understand.
Based on this, it’s clear to see businesses often have problems understanding how their energy broker is paid.
To help you unpick how your broker is paid, we’ve outlined the three most common payment structures used by energy brokers.
Commission- based payment
This is the most common method used by energy brokers.
With this method, an energy broker will send you a price from the supplier that includes an uplift, either as a unit rate or a standing charge. This uplift is the broker’s commission. The rate of commission will depend on the broker, with unit rates varying widely from 0.05p to 5p per kilowatt-hour.
Here’s an example of how the commission model works. You go to your broker to request a price. They will then go to suppliers to request prices that include their commission. When you receive the prices back from the broker, these will include the commission in the rate.
One question to ask with a commission model – is the broker’s commission added to the p/kWh unit rate or the standing charge on your contract? Sometimes this is not explained clearly leaving businesses believing that their broker is providing a free service.
Share of savings payment
Another payment method, which is used by some brokers, is a share of the savings model. With this approach, your broker will receive a percentage of the total savings they achieve for you (normally between 10 – 50%, though this varies from broker to broker).
If your broker is using this method, then it’s really important to be clear on what they’re basing the saving on, so there isn’t any misunderstanding further down the line.
Under this method, you agree with your broker what services they provide for you and then you agree a monthly rate. Typically, under this model, you’ll receive an invoice every month, with the fee that you need to pay to your broker. This will be in addition to the fee you pay to the energy supplier.
Working with a broker on a consultancy fee basis has the advantage of price transparency, plus the reassurance that they are finding you the best contract on the market, regardless of supplier commissions and market prices.
In the end, what’s important is to understand that everyone who uses a broker or consultant will be charged. We strongly encourage anyone working with a broker to make sure they know exactly how their broker is being paid.