Managing Energy Costs In A Volatile Market: Effective Strategies For Businesses
Article at a glance
- Business energy costs are unpredictable, but hedging strategies can provide stability.
- Energy procurement consulting helps secure favorable contracts and manage risks.
- Smart technology can improve efficiency and reduce energy expenses.
Energy costs for your business have shot up drastically this year, and they don’t seem to be on the downswing anytime soon. If there’s one thing that’s certain about energy costs, it’s that they’re, well, uncertain. How can you get a grip on your expenses if you’re not sure what energy prices will be from one day to the next?
Below, Navigate Power, an energy procurement consulting company, explains how to manage energy costs for your business in an ever-changing market.
Hedging Strategies To Stabilize Energy Costs Effectively
Even though energy prices are wildly volatile, there’s a lot you can do to keep costs down. One option is a strategy called “hedging.”
Hedging involves buying and selling futures contracts to protect energy traders from price fluctuations. Essentially, hedging means that you lock in the price of energy for a certain period (often four or five years). If the price increases during that period, your agreement partner will have to pay the difference.
It’s not quite as simple as it sounds, though. You’ll need to decide at what price to buy energy and when. For example, prices might be high now, so you’re reluctant to lock in that rate. But what if they increase further? You might regret not pulling the trigger sooner.
There are three main hedging strategies to consider for an energy procurement consulting company:
- Managed hedging: Managed hedging provides ample time for you to react to energy market changes. With this option, you establish time—and price-based triggers for your contract.
- Block and index: This option enables you to choose a fixed price for a specific amount, or block, of energy. Usage over that amount will be billed at the current market rate.
- Load-following block and index: With this strategy, you choose a rate based on a percentage of your use. The rate stays the same regardless of your energy usage.
Pricing Solutions To Ease the Financial Impact of Energy Price Fluctuations
Rising energy costs have a ripple effect on everyone in the supply chain, including your business and its partners. One way to manage the impact of price volatility is to raise prices for your products or services.
This is not something you should do on a whim. You must first determine whether customers will be able to absorb the increased costs, and if so, what level of price increases they can tolerate.
You should also talk to your clients and suppliers to learn what cost pressures they’re dealing with. For example, if your supplier must raise prices due to a materials shortage, that could impact your business down the line.
Additionally, take a look at your work schedules. Some energy companies charge higher rates for using electricity during peak hours. See if you can shift the timing of your operations so that employees handle the most energy-intensive work during off-peak hours.
Effective Energy Procurement To Mitigate Risks & Manage Costs
An energy procurement consulting company, such as Navigate Power, can help you find the best energy contract for your business. That means less time spent hunting for the right contract and more time to focus on making your company thrive.
Energy procurement is appealing because your business is unique, and a one-size-fits-all energy solution won’t necessarily work for you. Whether you’re looking for an on-demand response contract or prefer long-term contracts, we can help you find the one that suits your needs best.
Utilizing Market Insights & Technology for Informed Energy Decisions
If your business wants to save money on energy costs, it’s smart to pay attention to market trends. By doing so, you can keep tabs on whether pricing is increasing or dropping, allowing you to make informed risk management choices for your business.
Consider adopting some new technology to boost energy efficiency and keep costs down. Consider strategies like these:
- Install a battery-operated energy storage system. Such a system allows your business to save money on operations when energy demands (and costs) are at their highest.
- Install a smart meter to monitor your electricity usage. Some utility companies will install a smart meter for you free of charge.
- Install solar panels to take advantage of the sun’s power during daylight hours. Generating your own power allows you to avoid the impact of those constantly changing energy prices.
- Invest in artificial intelligence (AI). AI tools can help you monitor your energy usage and provide suggestions for lowering it and, in turn, your monthly costs.
Additional Read: Why Utility audit is Important
Achieve Substantial Business Energy Savings and Stability in Energy Costs Today!
Want to learn more about energy hedging and lock in a low rate for your business? Our energy procurement consulting company will help you find the right contract for you. Visit Navigate Power Chicago Or Call at 1 (800) 541-1137 to learn how our commercial energy consultants can save you a bundle on your electricity bill.
