Energy Market Insight with Energy Consultant, Oliver Hoad
Q: Tell us a little about what’s transpired in the energy markets over the last 18 months, and what effects you are seeing in your client-base as a result.
The energy markets can be described in one word: volatile. About 18 months ago, the NYMEX spot market for gas experienced exceptionally high levels, driven by the surge in global LNG prices following the curtailment of Russian gas supply. Prior to that, June 2020 (COVID-19) saw the all-time historical low. Fortunately, markets rebalanced through 2023. From the client side I think there is an increased focus on energy budgets and purchasing strategies due to the volatility and high price points in recent years. If your energy cost is not being managed appropriately, if you have large open index positions, or remain on a utilities general service, you are potentially placing your budget under significant risk.
Q: You work with a large number of manufacturers. What advice would you give manufacturers who are trying to mitigate volatile energy costs, while also considering energy efficiency and sustainability projects?
They go hand in hand. You obviously need a well-thought-out strategy to manage the actual price per kilowatt-hour (kWh), but I had an old boss who would say, “the cheapest kWh is a kWh not used.” My advice would be to leverage incentives and grants currently available through the Inflation Reduction Act and other programs to identify potential efficiency projects.
Q: Same question, but for the food processing industry, where you also have a strong base of clients?
There are many new targets and goals for reduced emissions, which are no longer mere considerations; they have become essential needs or requirements to comply for stakeholders or supply chain. Again, the Inflation Reduction Act is a great place to look for multiple incentives. Additionally, exploring REAP (Renewable Energy for America Program) is another recommendation. Most importantly, start collecting data so you can establish a baseline. Without a baseline, there is no way to benchmark any efficiency gains or carbon reductions made. With the enhanced capabilities that APPI Energy’s merge with Environ brings, we can offer the Scope 5 Software that provides an entire software platform centered on establishing baselines, tracking and reporting on emissions and other ESG metrics/data.
Q: What energy solutions have moved to the forefront in your client conversations?
Carbon and environmental (water/waste) accounting come to mind. With new legislation, SBT (Science Base Targets, SEC (Security Exchange Commission), targets, goals, compliance, mandates, supply chain, investors, stakeholders… there is a lot of pressure and a real need to efficiently and accurately collect, house, validate and publish this data.
Q: Besides angling for the lowest price on electricity or natural gas, what are a few other key considerations for organizations to take into account when looking for a new electricity or natural gas supply contract?
For electricity, MAC (Material Adverse Change) language needs to be considered. If a contract contains MAC, it means the contract is in breach, if there has been a material change to the facility (LEDs, Solar, HVAC) that shifts the consumption volumes outside a certain percent. If you have an efficiency or generation project on the horizon, be mindful of that clause, as the purpose of a lot of these projects is to reduce consumption, demand or utility supply.
Q: How do you see the energy industry evolving over the next few years? And what advice would you give to clients to navigate that landscape?
The increased need to comply with different standards and requirements, for example, BERDO (Building Emissions Reduction and Disclosure Ordinance) in Boston. We see a lot of requirements, whether from legislation or from stakeholders, adding pressure to organizations to reach specific targets on a set timeline. When unsure of where to begin or how to monitor progress, the pressure intensifies, especially when reporting is added to the mix. Our top recommendation is to start tracking your data, if you haven’t already, and establish your baseline – a solid starting point. Following that, seek out energy advisors who can assist your organization throughout the entire process, guiding you from inception to goal attainment. At APPI Energy, a Division of Environ we can assist you in defining your goal, monitoring progress, providing recommendations, reporting on your advancements, and ultimately ensuring you meet your target, all with the support of our dedicated team. We essentially become an extension of your team.
Oliver Hoad, EMP
Energy Consultant
