Navigating Your Energy Procurement Options
For organizations in deregulated energy states aiming to strike a balance between price and risk on the purchase of their electricity, there are a variety of considerations – and options – to weigh. Competitive suppliers offer procurement products to tailor your energy buying strategy based on your personal or company goals.
Whether you’re familiar with energy procurement and are looking for a new energy contract, or are new to the concept entirely, the bottom line is that the right energy purchasing or procurement strategy should align with your specific energy and budgetary goals.
Simplified Procurement Process
An effective procurement process is straightforward and cost-free upfront. All you need is to provide a copy of your energy bill. Your energy consultant will handle the following steps:
- Assess Your Energy Needs: Review your current supplier contract, energy usage, historical tariffs, market data, risk tolerance, and ongoing efficiency projects.
- Gather Account Information and Usage Data: Obtain relevant data from your current utility.
- Send Customized RFPs: Issue requests for proposals to a variety of trusted suppliers.
- Provide Comparative Analysis: Present a detailed comparison of supplier prices and contracts, recommending the best options for your needs.
- Manage Service Transition: Verify enrollment with the chosen utility and supplier.
- Ongoing Monitoring: Continuously monitor your accounts to identify further cost-saving opportunities.
Crafting an Effective Strategy
Energy purchasing involves inherent risks due to fluctuating market conditions. Fixed contract terms affect supplier offers through risk premiums. Buyers must weigh the cost of potential “insurance” against the risk of sudden price spikes that can impact budgets significantly.
A layered energy buying strategy, akin to dollar cost averaging, can mitigate these risks. Fixed price hedges can be customized based on term length, usage percentage, seasonal variations, or time of use, aligning with your organization’s operations and risk tolerance.
Supplier Pricing Models – At a Glance
Fixed price products offer a set price ($/kWh or $/MWh) for your electricity supply for the length of your contract term. These products enable commercial and industrial businesses (and other non-residential entities) to lock in their energy rate and reduce their exposure to market rate volatility.
Index priced products are priced at the market rates in the region where a business is located and your monthly rate will vary according to the market. These products are appropriate for businesses who wish to capitalize on favorable (downward) market movement or who do not wish to lock in their entire load at a fixed price at a given point in time. Index priced plans also typically offer the opportunity to move to a fixed price when market conditions align with your business goals.
Block and index pricing combines the price certainty of fixed energy pricing with the market movements associated with an index-based price. A customer can customize this approach to match the risk preference of its business.
Hybrid pricing models offer a combination of fixed and market-based electricity purchases, allowing a business to lock in portions of their supply requirements for budget protection, while still having the ability to take advantage of market decreases when they occur.
Benefits of going beyond fixed-price products include:
- Allows for multiple purchases leading up to and during the contract term
- Detailed analysis of multiple hedging scenarios
- Flexibility – lock in some terms or cost components but “float” others
- Implement target prices with upper and lower strike prices
- Option to convert to fully fixed pricing during the term
- Customized recommendation
Energy costs can constitute as little as 50% of the total cost per kWh. Terms for other cost components can be tailored based on current market conditions, risk tolerance or other company objectives like increased sustainability or demand curtailment opportunities.
Environ offers a variety of unique energy buying strategies. For those who prefer fixed, all-inclusive pricing for budget certainty and simplicity, Environ’s procurement team continuously monitors markets to identify cost-saving opportunities. Your dedicated consultant will update you on market conditions ahead of your contract’s end date to help you capitalize on market dips.
To learn more and explore your energy procurement options contact one of our dedicated energy consultants at info@environenergy.com.
