Collective purchasing - all you need to know
Attractive energy deals can be the result of negotiations between a group of customers and a provider who offers them an exclusive deal, usually after a competitive tendering process.
A collective purchasing scheme of this nature will be organised by a third party, such as a price comparison website, which will undertake the negotiations and arrange the details of the deal itself.
The group's combined buying power means it will be able to secure a more attractive energy deal than most of those tariffs advertised to individual households.
How does collective purchasing work?
There is no set model for this sort of arrangement, but a collective purchasing scheme or collective switch normally has the following four stages.
A third party, such as a price comparison site, housing association, local authority or charity, advertises a collective switch.
Consumers are invited to register in order to form a group or 'community'. To register, you might be asked to fill in some basic details, such as your current supplier and tariff, and estimated energy usage. There shouldn't be a registration fee but there will be a deadline.
Only those who register within the deadline are eligible for the exclusive tariff.
Under the rules laid out by the energy regulator, Ofgem, you need to be registered before a switch begins in order to be eligible for the tariff.
The third party will use the community's combined buying power to negotiate a deal for a fixed gas and electricity tariff with an energy supplier.
The agreed tariff will only be available to consumers who registered for the collective switch scheme. This tariff is often priced very competitively compared to tariffs available on the open market.
Households signed up to the scheme will be notified of the chosen tariff and invited to switch. There is no obligation on them to do so and households should not be placed under any pressure to buy.
Is collective purchasing right for you?
In general, the more people the switch organiser can attract to its community, the greater its negotiating power will be. This means that larger communities will have more chance of getting access to market-leading deals.
Once the collective tariff has been announced, households will be given a date by when they will need to decide whether to proceed.
At this point it's a good idea to compare the collective tariff to those deals available on the open market. Although it might cost less than your existing tariff, it could be beaten by the cheapest energy deals available - so make sure you check.
Before switching to any new tariff, consumers should read the tariff's terms and conditions. These will include how long the tariff is fixed for, the payment method, and whether you're required to manage your account online.
When weighing up the pros and cons of an offer, don't forget to take into account any termination fee on your current tariff. If your existing price plan is fixed, you might have to pay a penalty (usually a cash amount for each fuel - so, say, £30 or gas and £30 for electricity) if you switch before the fix expires.
You should also think twice about participating in a collective scheme if you receive the Warm Home Discount as it is not always available to collective switchers.