Effective energy procurement requires careful planning and a sophisticated understanding of modern energy markets. This is especially true for companies that rely heavily on reliable electricity or natural gas supplies and operate in locations where suppliers compete for customers.
Navigate Power provides guidance below about how energy procurement helps businesses manage the intricate web of energy suppliers, contracts, and pricing strategies.
What Is Energy Procurement?
Energy procurement describes strategic energy sourcing of a business’s needs from local distribution companies (LDCs) or third-party suppliers. Simply stated — when possible, companies explore alternatives to relying solely on a utility company to find more economically competitive contracts for energy needs.
When firms are fully informed of the available options, they can better choose supply contracts that are more cost-effective and tailored to their specific needs.
The overall goal of an energy procurement plan is to secure optimal contracts with the best energy rates while minimizing the inherent risks of price fluctuations and supply chain disruptions.
The Importance of Energy Procurement
Every business relies on dependable and affordable energy to survive and thrive. A well-planned energy procurement strategy improves cost management and lowers risks presented by market volatility.
From a cost perspective, taking advantage of the competitive energy marketplace gives firms the power of negotiation to obtain the most favorable contractual terms. The flexibility provided by an open and more deregulated energy market can lead to substantial savings.
Businesses that partner with skilled energy management consulting firms enjoy expert insights and access to advanced data and analysis, which support more robust planning and budgeting and greater resistance to market disruptions.
Regulated vs. Deregulated Energy Markets
The power of your business’s energy procurement strategy will depend largely on whether it operates in a regulated or deregulated market.
Highly regulated markets have a single supplier empowered by government regulations to control the supply chain. Like all monopolies, there is no competition in pricing or supply systems, forcing businesses to purchase energy directly from a local public utility at rates established by regulators.
On the other hand, deregulated markets are open to competition. Businesses have the power to select the suppliers that best suit their needs. As always, competition leads to lower costs and more flexible contract and delivery options.
Energy management consulting services are highly valuable in deregulated markets. Skilled and experienced consultants help businesses understand the complexity of choosing competent suppliers with the most favorable contract terms.
The Key Players and Their Roles in the Energy Sourcing and Procurement Process
Successful energy procurement involves a number of entities working together.
Suppliers
Deregulated markets are open to energy suppliers, who develop the infrastructure and supply chain needed to provide electricity or natural gas directly to businesses. Suppliers assume much of the risk of market fluctuations by purchasing electricity or natural gas from producers and offering it at competitive rates.
Energy Brokers
Brokers act as third-party intermediaries between suppliers and commercial consumers. They work to connect the parties and often negotiate contracts on behalf of all parties to energy contracts.
Energy Consultants
Consultants provide strategic consulting services on behalf of businesses. Working in their client’s best interests, they evaluate energy usage and needs and analyze the market and available suppliers. Consultants assist business clients in managing all parts of their energy procurement strategy.
Utility Companies
Regulated energy markets are subject to monopolistic pricing and regulations. Even in deregulated markets, utilities still manage energy distribution, making expert consulting services even more important.
Business Owners and Procurement Managers
Businesses typically have in-house personnel who oversee the firm’s energy procurement. They work directly with consultants, suppliers, and brokers to secure the best possible options for their company’s energy needs.
The Types of Commercial Energy Procurement Contracts
Energy procurement contracts vary based on market supply and a business’s needs.
The most common types of commercial energy procurement contracts include:
- Fixed-rate contracts: These lock in a set price over a specified period. These contracts protect against rate increases but can lose the benefits of shorter-term decreases.
- Indexed contracts: Market rates control these contracts. Businesses with higher risk tolerance and flexibility are usually better suited to their price volatility.
- Block and index contracts: These blend fixed and indexed pricing. Suppliers supply some energy usage at a set rate, and rates for other energy needs fluctuate with the market.
- Variable rate contracts: These typically change month-to-month based on market rates. They provide short-term flexibility but carry a greater risk of sudden price increases.
Navigate Power Leads the Energy Management Consulting Industry
Energy procurement is critical for every business in managing energy consumption. Navigate Power helps companies navigate complex and constantly evolving energy markets.
We’ve been leaders in energy procurement since 2021 and offer expert guidance and competitive pricing to thousands of industrial and commercial clients.
Contact Navigate Power at 1 (800) 541-1137 or fill out our online form to learn how our expert team can help optimize your energy procurement strategy. Talk to us today!
