Energy Procurement Best Practices
Four ways to maximize savings
It’s well known that energy costs are always one of the most significant portions of a commercial building budget. Finding ways to reduce that spending can be tricky, but there are ways that you can impact it: reduce the amount of energy consumed, change the time of day energy is used, or reduce how much you pay for that energy.
Typically, reducing energy consumption is the go-to solution that many building owners and energy managers use in an effort to reduce costs and improve sustainability. While this is an impactful way to decrease energy spending, there’s another, less conventional strategy that is often overlooked, even though it can yield significant savings: energy purchasing.
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The obvious, though less common, solution is gaining traction in the industry as owners and managers explore ways to reduce their energy budgets. Developing a strategy for examining and assessing your energy procurement options can help you make the most of your commercial building budget.
Consider these energy procurement best practices to help streamline the energy supply process, maximize savings, and optimize efficiency in your next commercial building project.
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Tip No. 1: Engage a Knowledgeable Partner
Energy procurement is a complicated process compounded by the many factors that impact energy rates. Working with a reputable and knowledgeable partner makes the process easier—and can save your company money.
Energy procurement and management companies are powerful resources that can help you avoid spending too much on energy. These companies have long-standing supplier relationships and market intelligence capabilities that they leverage as they work with you through the procurement process and assist you in getting the best deal possible. Using energy price forecasting, regulatory and legislative monitoring, and years of energy industry experience and contacts, an energy procurement and management firm can help you make insightful decisions to reach your company’s goals.
When choosing to engage an energy procurement and management company, select an experienced partner with insight into the full supply chain and industry pricing structure. This organization can provide visibility to the tens of thousands of energy transactions taking place annually. Consider working with an independent advisor without ties to a specific energy company or market. This independence helps create loyalty to you, not the energy supply company, and will provide transparency throughout the procurement process.
The right procurement and management partner can help you navigate the energy-purchasing waters—and prepare your company for trends that may impact the industry down the road.
Tip No. 2: Consider Your Goals
Saving money is typically the top priority for most energy and supply chain managers examining their energy procurement options. But as customers demand more efficient, environmentally conscious solutions for their buildings, many energy and supply chain managers are prioritizing sustainability and the use of renewable energy. When it comes to reaching these types of goals, you need to look beyond price in the purchasing process. It all comes down to what you’re trying to achieve.
If the goal is to reduce energy costs by 10%, then purchasing renewable energy is likely not the solution. And if you are hoping to reduce the company’s carbon footprint, you’ll need to buy a certain type of energy that may not always have the lowest price tag. All of this is to say that putting sustainability first can look very different than your typical energy procurement process and sources.
Because many energy contracts are long-term (between 10–20 years), it’s important to take a comprehensive, enterprise-wide approach to buying renewable energy solutions. If your enterprise has buildings or operations in many states, you can achieve more buying power when you coordinate efforts.
Make sure you’re considering the total end-cost of an energy contract. There are many factors that affect the final cost of an energy contract, and this may not be clear in every situation. An energy procurement and management firm can help you understand the total cost of the contract structure—not just the initially quoted supply price.
Tip No. 3: Link Supply with Demand
Before entering into a supply contract, you should fully understand all the factors that influence energy demand in your building—including the supply and demand relationship. Pay close attention to how much energy your building or enterprise uses, taking time to look at both prior and forecasted usage, to determine how much energy to buy.
It is imperative that the supply chain, which drives purchasing, communicates with the operations staff, who oversees day-to-day use of building facilities. Otherwise, the energy manager or supply-side personnel may assume that because x amount of energy was used last year, x amount of energy will be needed again next year, when in reality, operations may plan to install a new production line or more energy-efficient equipment that will impact the facility’s energy demand.
If your organization is going to take measures to reduce peak demand, you need to make sure your energy supply contract allows you to benefit financially—rather than potentially being penalized by your supplier. Demand-side reduction efforts should be negotiated into your supply-side contract. It’s also important to run a competitive bid process every time you seek a new supply contract, rather than allowing your current supplier to set the price. Doing so will help you secure the best deal for each new contract.
Tracking energy markets can support procurement success.
Tip No. 4: Plan Ahead
Another common pitfall in energy procurement is waiting until just before the current contract expires to start looking for a new one. The energy market is seasonally cyclical and impactful market events can drive prices up or down for short periods. To avoid paying too much for your next contract, get an early start and take time to really dig into your options and review pricing. This is where working with an experienced energy procurement and management firm can yield big returns. Tracking the energy market daily and understanding how certain events will impact pricing over time are both critical to long-term buying success.
If your organization requires stakeholder approval of energy contracts, be aware of that and secure that approval in advance. This allows you to move quickly when the time is right, so you can then lock in the best price. Not having the approval process in place could translate into delays and lost opportunities in terms of pricing because prices are often only valid for a short period of time.
Purchasing with Strategy
Your energy purchasing strategy is dependent on many things, most of which are out of your control. Weather, government regulations, demand charges, and new energy developments are all issues that can impact pricing for commercial customers. Taking control of your procurement options with thoughtful research, meaningful partnerships, conscious goal setting, and extensive planning can help you make the right purchasing decision for your building. And remember that you don’t have to do it alone. Working with an experienced energy consultant can help you streamline the energy supply process to increase your savings.