Most modern businesses need energy to remain operational — whether that means keeping manufacturing plant lights on and machines running, or securing sufficient power for large servers to ensure core services stay online. These needs, and others like them, are common in a variety of industries but are particularly important for commercial, industrial, government, and institutional facilities.
The problem is that the energy market is complex and can be difficult to understand. Lots of businesses simply can’t invest the time or resources it takes to secure the best possible energy prices or contract terms based on their unique business needs.
This is where the knowledge and strong supplier relationships typical of an energy procurement partner come into play.
Here, we’re talking all about energy procurement, from partnership to pricing and everything in between.
What Does an Energy Procurement Partner Do?
First and foremost, an energy procurement partner is there to help your organization navigate the complexities of the energy market and optimize your energy procurement strategy to drive lower energy costs and higher energy efficiency.
Here’s how that typically unfolds:
Market Analysis
A solid procurement partner will monitor the current energy market, analyze trends, and assess factors that may impact energy prices, such as supply and demand dynamics, regulatory changes, and geopolitical events.
Supplier Management
An effective procurement partner will handle supplier relationships for you. By maintaining these relationships, your procurer will negotiate contacts and contract terms by leveraging industry expertise and market knowledge to secure favorable rates and conditions that meet or exceed your expectations, ultimately helping you achieve your long-term business goals.
Strategy Development
An ideal procurement partner will not only develop a strategy for you with your best interests in mind but will ensure that you’re part of the process. Collaboration is key to effective procurement strategy development to deliver customized approaches that are tailored to your specific goals, risk tolerance levels, and budgetary constraints.
Reverse Auction Bidding
In energy procurement, there are effective and not-so-effective ways of securing the best deals and contract terms with vendors — one of the most successful methods being reverse auction bidding.
Unlike a typical auction where the highest bidder wins, this method of auctioning turns the bidding toward the supplier, where they’ll compete with other vendors to offer the lowest prices to win business.
Here’s a brief breakdown of how reverse auction bidding works:
- Preparation: As the buyer, you’ll work with your procurement partner to define your energy requirements, including volume, contract duration, delivery terms, and any specific criteria or requirements necessary for your success.
- Invitation to bid: Next, your procurement partner — who should have a vast contact list of vendors — will invite qualified energy suppliers to participate in the reverse auction. This invitation usually includes the terms and conditions of the procurement, as well as instructions for the bidding process.
- Bidding: During the auction, suppliers submit bids electronically through a designated platform. The bidding typically occurs in rounds, with each round allowing suppliers to adjust their prices based on the current lowest bid.
- Real-time monitoring: Along with your procurement partner, you’ll be able to monitor the auction in real time to see all offers on the table, including the current lowest bid and how it compares to other offers.
- Bid evaluation: The auction continues for a set period, during which suppliers have the opportunity to revise their bids in response to competition. When it’s time to evaluate the bids, you’ll sit down with your procurement partner to review offers based on price, contractual terms, reliability, and other relevant factors.
- Energy contract award: Once a decision has been made with the help of your procurement partner, you’ll award the energy contract to the supplier offering the lowest acceptable bid that also meets all of your requirements.
Contract Management
Once the bidding concludes, an energy procurement provider will assist and advise you in reviewing and negotiating energy supply contracts to ensure clarity, transparency, and compliance with regulatory requirements.
As an example, here are a few common types of energy contracts:
- Fixed price contracts: These contracts lock in a specific price for energy over a set period, providing stability and predictability for budgeting. The caveat here is that if market prices drop, you may miss out on potential energy savings.
- Index price contracts: This type of contract is tied to a market index, such as the wholesale price of electricity or natural gas. When the market fluctuates, as it often does, prices will mirror that. While that can increase the savings potential when prices are low, it also exposes you to more risk if prices rise.
- Block and index contracts: These contracts combine elements of both fixed price and index price contracts. Consumers purchase a fixed portion of their energy needs at a set price (the block), while the remainder is purchased at market prices (the index).
Beyond these action items, a prospective energy broker should meet particular criteria to ensure you’re getting the best bang for your buck. That’s a broker who is experienced, knowledgeable, ethical, and transparent.
The Benefits of Energy Procurement
Beyond keeping the lights on, working with an expert team as part of an energy procurement service and strategy can bring bounteous benefits for your business and its bottom line.
Cost Savings
One of the primary benefits of energy procurement is the potential for cost savings. By strategically sourcing energy from the most cost-effective suppliers and negotiating favorable contract terms, organizations can lower their energy expenses and improve their bottom line.
It’s important to note, though, that you should exercise caution if an energy procurer promises the lowest rates possible. The market is complex and ever-changing, and while the ultimate goal is to help you achieve your goals, that doesn’t always mean that you’ll pay the cheapest rate possible.
Enhanced Load Forecasting
This involves analyzing historical consumption data, weather patterns, economic indicators, and other relevant factors to estimate how much energy your organization will need in the future. It’s a critical component of energy procurement as it enables you to make more informed decisions about how much energy to purchase or generate to meet expected demand.
An energy procurement partner can enhance load forecasting for your organization in several ways:
- Expertise and experience: Procurers often have specialized knowledge and experience in various load forecasting techniques and methodologies. They can provide insights into best practices, industry trends, and emerging technologies to improve the accuracy of forecasts.
- Data analysis: Access to a wide range of data sources, including historical consumption data, weather patterns, economic indicators, and market trends comes in handy when load forecasting and energy procurers often have access to such information.
- Customized solutions: Customized load forecasting solutions that are tailored to the specific needs and requirements of your organization produce the best results. Your energy procurement partner should consider factors such as seasonal variations, peak demand periods, and customer behavior patterns to create more reliable forecasts.
Risk Management
Energy markets can be volatile, with prices fluctuating due to factors like supply and demand dynamics, geopolitical events, and regulatory changes. Effective energy procurement strategies can help organizations mitigate risks associated with price volatility by locking in favorable rates through long-term contracts.
Environmental Sustainability
According to the American Clean Power Association, there were 326 companies with renewable energy procurement agreements in place at the end of 2022. With increased pressure for governments to net zero emissions by 2050, this number will undoubtedly grow in the years to come.
Working with an energy procurement partner who is knowledgeable in clean energy can contribute significantly to your environmental sustainability goals. By sourcing energy from renewable sources or implementing energy efficiency measures, organizations can reduce their carbon footprint and demonstrate their commitment to environmental responsibility.
Energy Supplier Diversity
Engaging with multiple energy suppliers through competitive procurement processes can promote supplier diversity and foster competition in the energy market, leading to improved service quality and innovation.
Couple supplier diversity with a reverse auction bidding process, and you can expect to reduce your energy spend and receive reliable service.
Regulatory Compliance
Energy procurement strategies can help organizations ensure compliance with relevant regulations and standards governing energy sourcing, consumption, and emissions. This includes requirements related to renewable energy targets, emissions reductions, and energy efficiency initiatives.
Why Partner with EnerConnex?
EnerConnex’s optimized energy procurement process offers best-in-class support and expertise to find you the best rates available. We focus on three key areas to deliver the best results possible, including your:
- Energy costs.
- Energy consumption.
- Energy usage.
By focusing on price, quantity, and use, we serve as an unbiased supplier-neutral advocate so you can be assured that the price you pay for energy is what makes the most sense for your business.
Learn more about our Energy Procurement Services and how we can deliver you the best rates on your terms.