September 6, 2016 - By Constellation
5 signs it's time to rethink your energy strategy
Sponsored by Constellation
Many businesses don’t spend a lot of time thinking about the way they buy energy. They’ve done it the same way for so long that they just haven’t considered doing anything differently. They adhere to the old saying, "if it ain’t broke, don’t fix it.”
But as a facilities manager or purchasing manager, how do you know when the old strategy is broken? What does it take before you reach a breaking point and think: "There has to be a better way?” Here are five signs it’s time to rethink your energy purchasing strategy.
1. It's difficult to plan ahead
Do you find yourself using a lot of "ifs" these days?
- We’ll stay within our budget if it’s a mild winter.
- We can afford energy-efficiency upgrades next year if market prices remain steady.
- If we can just negotiate a better energy contract next time, we’ll be able to keep our prices competitive.
A desire for greater budget certainty is one of the primary factors that prompt companies to look for a better way to buy energy, particularly if they operate in a highly competitive industry where unpredictable costs can have a heavy impact on the bottom line.
In many cases, these companies are looking for a fixed or secured price solution* that allows them to lock in energy prices over the term of their contract or a strategy that will give them greater flexibility to take advantage of market opportunities while still maintaining budget security. This is known as a flexible index solution. Each option offers unique advantages, so taking the time to assess your budgeting goals can help you decide which is right for you.
2. You’re Always Shopping Around for the Lowest Energy Prices
Before implementing a flexible index solution and using an algorithm-based program to purchase electricity, the Giant Eagle supermarket chain was sourcing short-term fixed or secured price* agreements from multiple suppliers based on the lowest price. Prices were locked in for a predefined volume based on usage patterns, and any incremental load was purchased at market price. Aside from being time-consuming and inefficient, this approach exposed the retailer to unpredictable results.
If this strategy sounds familiar, it might be time to consider a blended strategy like the one Giant Eagle implemented.
3. You’re Spending Too Much Time Keeping Track of Every Transaction
You don’t go online every day to manage the stocks in your 401K, so why would you want to buy energy this way? If you want to continue to actively manage your energy purchasing but don’t want it to be a time-consuming ordeal, consider using online tools that allow you to set targets based on your business needs, get the latest market information and make adjustments over time. If you’d prefer to put your purchasing on autopilot by using an algorithm that buys more energy when prices are historically lower and less when they tend to be high, a Minimize Volatile Pricing program for electricity (MVPe) allows you to do just that.
4. Internal Disagreements Have Become the Norm
If rising costs and perceived bad decisions have your management team pointing fingers, it’s time to get everyone on the same page. Look for an energy purchasing solution that offers greater transparency — through high-level dashboards and frequent reporting — as well as access to experts who can provide objective recommendations.
5. You Worry About the Future
Many factors can impact energy costs, including weather, supply and demand and policy changes.
Though no one can predict the future with complete accuracy, customers can take some steps now to proactively manage energy costs.
One of the best ways to minimize the effect of market fluctuations is with a strategic approach to energy purchasing that takes all these factors into consideration.
*Please inquire to see what is available within your region.
This is the third in a series of columns sponsored by Constellation addressing the interests of Smart Energy Decisions’ readers. The first, published in April, addresses how to manage risk within your energy portfolio. The second, published in June, explores how fixed price power contracts compare to blended purchasing strategies.
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