Below are three resolutions we can all live by because they do not include eating healthier or exercising more. These 2019 resolutions are targeted to energy buyers to help ensure your energy procurement programs are best-in-class.
Focus on Cost, not Just Price
Even though we folks in energy procurement are obsessed with energy rates, company budgets only care about overall costs. When looking at your company’s energy budget, your usage must be considered as much as your energy rate. Energy consumption should be evaluated for quantity and quality.
It is important to understand consumption patterns given production levels, weather impacts and load flexibility. Benchmarking current consumption alongside production levels and outside temperatures is a great place to start. Trends may be evident almost immediately and anomalies may present themselves. Identify load-consuming equipment that may have flexibility to run in advance of or behind peak hours without dramatically impacting production. This type of load flexibility is valuable and can be monetized. Once you get your arms around how much your facility uses today you can then start figuring out how to use less tomorrow.
The quality of the power coming into your facility should also be evaluated. Specifically, voltage sags of only milliseconds can cause production interruptions costing thousands, if not millions, of dollars. These sags are usually caused by outside forces such as animals damaging utility distribution equipment, cars running into utility poles and lighting strikes. It is nearly impossible for utilities to eliminate voltage sags for an entire network, which leaves customers to provide their own correction equipment. Quantifying the total costs of voltage sags to your operations can allow you to calculate payback periods for customer-sited solutions such as active voltage conditioners (AVCs).
Purchase Proactively, Not Reactively
Being market reactive is a very costly approach to energy buying. Many energy buyers manage their purchases around their existing contract-end date, watching the market for only a few months prior to contract expiration. This method is not optimal and it is risky especially if the expiration is during peak price times in the winter and summer months.
By way of example, since 2015, electricity to be delivered during the year of 2020 has traded at a minimum of $33.33/MWh and a maximum of $45.33/MWh. That is a 36% difference! If you are able to proactively take advantage of market lows by making purchasing decisions years in advance of delivery, then the likelihood of securing market lows can be achieved. Changing purchasing strategies and policies to allow this type of long term planning can be extremely valuable to your bottom line.
Expect More from Trusted Advisors
Energy suppliers and brokers are constantly seeking their next customer as sales quotas loom over their heads. This can leave many of their current customers wondering when the last time they saw “our energy sales guy” in our office. Energy buyers should demand more of their trusted energy advisors. Energy costs are one of the top expenses for many manufacturers so keeping on the leading edge of risks and opportunities is critical to your success.
Insist on periodic in-person updates on both the energy market fundamentals and impending regulated cost impacts should be provided. Ask for energy budgets based on your production forecasts. Presentations should be provided that you can used to communicate to your management team. Finally, you should have the cell phone number of your trusted advisor and feel as if you can reach them at any time with urgent questions or concerns, but you may want to wait until after the New Year’s Eve party.