Rising costs were a pain point in 2022 for most businesses and organizations. Energy costs are no exception with natural gas and electricity prices experiencing unprecedented market volatility.
A variety of factors, both nationally and internationally, are contributing to high electricity and natural gas prices. While many factors are out of a company’s immediate control, a closer look at energy management strategies can identify opportunities to reduce energy usage and energy costs.
Creating budget certainty on the procurement process
Start with the basics: deregulation. Organizations in deregulated energy markets have the flexibility to create energy management strategies that align with community goals, budgets and fiscal calendars.
In a deregulated electricity market, the utility still owns all infrastructure and delivers the energy, but individuals can choose to shop around and buy electricity or natural gas from a licensed energy retailer that does business in the market. Competitive suppliers offer options to tailor energy buying strategy based on personal or company goals, and the utility is obligated to provide the same level of service to all customers if an outage occurs.
There are numerous benefits to energy deregulation and procurement, such as negotiating lower prices for electricity and natural gas, peace of mind provided with budget certainty and a fixed, all-in pricing.
Still, deregulation sometimes can lead to confusion.
When to take action
A common misconception centers around the timing of when energy supply agreements can be executed. Many executives believe they must wait until just before their current contract expires to decide what to do next. Actually, the process can start much earlier, in fact at any time during their current contract term.
Favorable electricity price trends greatly determine when business leaders evaluate prices and suppliers as well as when to go the route of a consultant. A core component of risk management is mitigating exposure to volatile energy prices that can cause budget uncertainty and operating cost increases.
The question is: Do you have adequate time and knowledge to track energy price trends and compare suppliers? For an organization that consumes 1 million kilowatt hours of electricity each year, the cost difference between supplier price quotes could be several thousand dollars annually.
An integral component of an energy management strategy is to seek consultation regarding market timing, the procurement process, suppliers and supply contracts. Leaders that are proactive have a competitive advantage when addressing their energy supply needs. They are positioned to make more informed decisions that decrease costs and provide improved budget planning and forecasting.
Make an energy management strategy a priority
Energy is one of the biggest cost factors of a business, large or small, but it not always is a top priority. Prioritizing how an organization approaches energy management and spending are the first steps. Just as important is talking about energy strategy and executing on smarter strategies.
Start by exploring current energy costs, demands, objectives and issues to make informed decisions about how to move forward. No two businesses are the same, and no two strategies are alike, so think in terms of what works for budgetary goals and objectives.
Partnering with a trusted source is crucial, especially for companies without the bandwidth or expertise to shop a wide variety of suppliers. A comprehensive look at the organization’s complete energy profile helps identity the right steps to take in not only reducing energy costs but also improving energy efficiency and sustainability.
Evaluating current energy needs
With that in mind, here are six simple questions to determine if a company is spending too much on energy or is not taking advantage of opportunities available to improve sustainability and resiliency.
- Do you evaluate your current energy supply contracts, building usage profiles, historical tariffs and market data?
- Have power outages cost you in production losses, or is your power unreliable?
- Have you explored generating your own power with technologies such as solar or combined heat and power (CHP)?
- Do you participate in a demand response program to receive monetary compensation for curtailment during peak times?
- Are your stakeholders encouraging – or demanding – a greener footprint?
- Does your organization have old, inefficient systems and equipment that could be upgraded to improve operations and concurrently save on energy usage and costs? Examples include inefficient HVAC systems, old air compressors with potential leaks or older lighting.
If any of these sound familiar, there is opportunity to improve current energy management strategy by reducing overall energy demand while also improving upon resiliency, efficiency and sustainability. Paired with a strategic electricity and/or natural gas procurement strategy, energy efficiency projects and demand-side management carry a multitude of operational, financial and environmental benefits that impact both the short and long term.
Dan Forgacs is the vice president of market analytics and intelligence at APPI.