10 Steps Toward An Effective Energy Procurement Process

Every successful business relies on a reliable and high-quality supply of energy. Without dependable electric services, integral parts of a company, such as communications, production, safety features, and employee amenities, become unavailable. In today’s competitive market, energy procurement ensures that your company receives a state-of-the-art energy supply without compensating on price. To further explore the possibilities of energy procurement services, call Navigate Power at (888) 601-1789.

What is Energy Procurement?

Procurement is the process of obtaining a good or service. A person, entity, or business invests in a product for partial or full ownership to benefit their business. Energy procurement specifically focuses on acquiring energy at the best possible rates and terms, ensuring consistent supply while minimizing costs.

What is Effective Energy Procurement?

Effective procurement is executing a plan to successfully obtain the good or service for the least cost. The company procuring should have a clear understanding of: 

• How the goods and services work
• How the procured item will enhance business operations
• All relevant people in the transaction, as well as their needs
• Potential risks and strategies to mitigate them
•  What maintenance do the goods and services require, if any

Understanding The Energy Procurement Process

Procurement works in various ways, depending on the number of parties involved. It can also change depending upon if the item in question is a good or service. Exchanging raw goods requires fewer parties than a service since the raw good is a finite product.

Energy procurement, especially in renewable energy, might seem complex due to its ongoing nature. However, with the right supplier and brokers, the process becomes streamlined, ensuring your business receives consistent energy at competitive rates.

There are four key players in the energy procurement process.

They include:

• The business- The business is the customer procuring renewable energy procurement services for their company.
• The supplier- The supplier negotiates pricing and contractual agreements with vendors on behalf of the business. 
• The vendor- The vendor, or utility company, provides the service. Their energy management services technical issues, outages, and individual issues. 
• The broker- The broker acts as the liaison between the business, the supplier, the vendor, and other parties affiliated with the procurement process. 

Your business will contact the supplier to find potential vendors when securing energy procurement services. The brokers who represent the supplier will negotiate the energy procurement process. All parties come together for the agreement process in the end. 

Direct vs. Indirect Energy Procurement

In energy procurement, understanding the difference between direct and indirect procurement is crucial.

Direct procurement is a straightforward process that involves obtaining a good or material. The supplier will give a substance or item to the business in exchange for a fee. The company generally will pay more upfront for direct procurement, as the item’s use factors into the price.

An indirect procurement involves services or collections of goods that impact daily operations. Energy procurement usually falls under this category, as it often involves ongoing services that can be negotiated over time.

For example, natural gas represents direct procurement, while fiber-optic energy, which is intangible, falls under indirect procurement.

The Importance of Competitive Bidding in Energy Procurement

Competitive bidding is a shopping process in which the business solicits bids from several vendors to compare them and determine which is best for the company. This process is essential in energy procurement as it helps businesses secure the most cost-effective and reliable energy supply. The supplier reviews each bid and considers whether or not each meets the expenses necessary to make the transaction. 

Risk Management in Energy Procurement

One of the critical aspects of effective energy procurement is risk management. Energy prices can be volatile, and supply disruptions can occur. A robust procurement strategy includes measures to mitigate these risks, such as long-term contracts, diversified energy sources, and contingency plans for unforeseen events.

Building an Effective Energy Procurement Process

1. Analyze Project Requirements and Energy Needs

Understanding your business’s energy requirements is the first step in the procurement process. This phase involves documenting how much power is needed to operate day-to-day functions and comparing it with what vendors can provide.

For example, if the business is a school and the vendor is an electric company, the school would document how much power they need to operate day-to-day functions. Then, the electric company would compare those daily totals to what they can provide and estimate the cost. This process would start the energy procurement process.  

2. Purchase Requisition or Indenting

Clearly outline your energy needs and procurement requirements in formal documentation. This will reflect the investment needed over a fixed period for energy procurement services.

3. Identify and Evaluate Suppliers

After purchasing services, it is time to find the right supplier to meet the purchase requisition’s needs. This is also where a business looks for brokers to aid them in finding the optimal energy solution. 

4 Float the RFQ

Floating the RFQ, or requesting a quote, is a form of inquiry into a potential vendor. It is sometimes referred to as a solicitation process, as the supplier solicits various vendors. An inquiry for a quote will generally include:

• The median price of the service
• A detailed explanation of the product
• How long it will take to connect the vendor to the business to supply the product

This means the total time that elapses for renewable energy procurement services before the business has a renewable power source.

5. Appraise the Quotes and Negotiate Terms

Appraising quotes is another way to ensure that both parties agree on the transaction. After reviewing the offers, each party will agree and set appropriate pricing. If the business is new to energy procurement services, the appraisal process will help approximate an accurate budget.

6. Negotiate and Sign the Agreement

At this point, the agreement is ready to review and for all parties to sign. This paperwork will act as a complete overview of the entire process, including:

• Amount of goods transferrable
• Delivery schedules
• Terms and conditions
• Servicing locations

An energy management company will oversee that the energy is ready for distribution upon the completion of the agreement. 

7. Release Purchase Order (PO)

A PO, or purchase release order, is the first official step after signing the agreement. The business sends the PO to the supplier. If the business is under a monthly contract, this will reflect an overview for the first month. It is similar to an invoice and will show:

• Dates of billing service
• The names of both the vendor and the business
• Method of delivery

8. Receive and Inspect Energy Supply

Upon drafting the purchase order, the business issues a material receipt confirming that the vendor sent what they ordered. Monitor the quality and consistency of the energy supplied. This step ensures that the vendor meets your energy needs and maintains high service standards.

9. Invoice Approval and Process Payment

The final procedural act is the business approving the initial invoice. When the business authorizes the invoice, they will pay the vendor for the goods. After releasing the funds, the first cycle comes to an end. 

10. Maintain Records for Compliance and Audits

For record-keeping purposes, both the business and vendor will keep track of the invoices. This will prove helpful in reviewing the relationship between all combined companies over time. Maintaining records will also help in any disputes over overcharging or excess services.

It is vital to retain records for renewable energy procurement services. Storing documents and invoices can help track things such as 

• Speed of transferable energy
• Consistency of energy/frequency of outages
• Any other major disruptions
• Proof of regular payment
• Proof of recurring service

Additional Read: Everything You Need to Know About Energy Management Procurement

Optimize Your Energy Procurement with Navigate Power

Renewable energy procurement services simplify acquiring reliable energy for a fair price. The business and the vendor benefit from the exchange, while the supplier and broker facilitate the exchange. By following these steps and incorporating best practices, your business can optimize its energy procurement process, ensuring cost efficiency and sustainability.

For optimal energy procurement services in the midwest, contact Navigate Power at (888) 601-1789. Their vast experience in the energy business ensures you will get the best energy procurement service at an affordable price.