The U.S. Energy Information Administration (EIA) predicts that energy costs will continue to rise through 2022 before dropping in 2023. A variety of factors is causing costs to soar, the pandemic, climate related events and the cost of natural gas. Electricity prices are higher in areas where it is generated from natural gas. The EIA predicts electricity generation from renewable sources will increase from 20% in 2020 to 22% in 2022 and will keep increasing as solar and wind generating projects progress. The cost of renewable energy sources started off higher than fossil fuel plant production but is falling to a comparable rate as new infrastructure is developed. There will be an increase in hybrid power plants due to the new green production. Sourcing energy supply from a blend of suppliers will be the best strategy to weather the rising costs.
Having the correct energy procurement strategy can save significant money on energy spend even during rising energy prices. Any type of business can benefit from an advantageous energy procurement contract. Because energy prices depend on many factors, choosing the best plan is not always obvious. There are multiple types of procurement plans such as a fixed electricity pricing plan, an indexed electricity pricing plan and a block and index blended strategy.
Procurement Strategies
A fixed contract can be an appropriate solution for companies that desire the certainty of a predictable budget. Regardless of price changes in the market, a fixed contract locks the customer in to a set price for the duration of the contract. In a rising market, this can be a good thing, but if rates drop, the customer is stuck paying the higher rate until the end of the contract.
An indexed electricity pricing plan is tied to a published market price and will vary month to month. The electricity provider must disclose the commodity that the pricing is based on in the contract. In general, an indexed pricing contract over time will save more than a fixed price contract but will have unpredictable fluctuations in spend for the short term.
The block and index strategy is a blend of fixed and indexed pricing. Fixed price blocks are negotiated during the contract term and can be selected around usage time periods, off-peak usage and percentage of loads. Developing a successful block and index strategy depends on intimate knowledge of the facility’s use patterns and regional supply.
Aggregate Groups
Joining an aggregate energy group to take advantage of bulk-buying has shown up to 30% savings on energy bills. This can be advantageous to smaller firms that would not qualify for bulk rates on their own.
Navigating the energy market on your own requires understanding the energy market trends and deregulation policies for your location. Representatives of suppliers that service your facility will provide a limited amount of information related to the sources they manage. In some cases, this can be enough to lower energy cost, but may not be the best deal with the most savings available. Working with an energy procurement consultant ensures that the strategy developed with the unique history of usage and the plans for the future of your company are considered and will be the best available.
If this is sounding beyond your capacity to research and get up to speed, consider partnering with Albireo Energy. Albireo Energy has a dedicated team that specializes in energy bill management and procurement contracts. Albireo has the depth of services to provide key insights into your energy consumption and spend and will provide a customized solution with clear next steps so that you can begin lowering your energy bill now. Albireo manages multiple aggregate groups and has a deep understanding of the value and applicability that joining a group may have for your enterprise. Whether the volume of your energy consumption is large or small, a savings of up to 30% can be significant to the bottom line. Rates are going to keep increasing this year, take the next step and call Albireo.
