energy costs | Stanley Energy

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Managing total energy costs over time requires an energy strategy focused on quantity as well as price. Energy conservation measures can go a long way toward lowering consumption and associated costs while achieving sustainability goals and meeting regulatory compliance.

These top four high-impact measures should be included in most energy conservation projects:

Lighting Retrofits – Almost always the quickest payback and most profitable energy conservation measure
Building Automation Controls – Comparable to lighting in quick payback and cost-effective savings
Water Conservation – Among the most aggressive ROI measures to provide big dollar savings and fast paybacks
HVAC Upgrades – Can improve efficiency on a large scale

Also reference the DOE – Office Building Energy Checklist

In this article, we discuss 11 different advantages of energy deregulation.

Find the “Right” Product

Purchasing energy through the utility is only offered as an indexed product. The utility either generates or purchases the supply and charges a fee and the price fluctuates with the market. For instance, natural gas demand is much higher in the winter in the Northeast and prices typically rise with demand. Purchasing energy from a competitive supplier allows the end-user to manage rate fluctuation exposure and choose a product that fits savings goals and risk tolerance.

Lower Energy Costs

Many professionals are able to lower overall energy costs for their facilities by finding the right product and purchasing competitive supply. In some cases, the savings are significant and can make a direct positive bottom-line impact for the customer. Typical supply side savings are in the 10-20% range (based on utility rates at the time end-user enters into a competitive supply contract).

Price Certainty

Fixed price products decrease rate volatility and hedge against future pricing increases. The supply rate charged by the utility is a variable rate and can fluctuate based on many factors that affect the supply cost. Customers electing a fixed price product will eliminate rate fluctuations during the contract term.

Flexibility

Deregulation has created products of all shapes and sizes depending on the unique needs for a particular facility. Unlike purchasing supply from the utility in a one size fits all product, competitive purchasing allows the end-user to create a forward thinking energy purchasing strategy.

Reliability

The reliability of your electricity does not change because you take advantage of deregulation. The infrastructure that transmits and distributes the energy is still handled and guaranteed by the regulated utility regardless of where you purchase the supply. You still contact the utility if the power goes out in a storm or if you have questions about your bill.

Products and Contract Terms

Prior to deregulation, utilities charged a monthly rate and the customer paid whatever the utility charges (usually determined by costs plus a fee). Deregulation has delivered a wide range of products and terms for the customer to choose from. The influx of new products also creates risk for the end-user because you could potentially choose a product that costs rather than saves money depending on unique energy needs. Many end-users enlist a broker to find the best product, term and pricing. Such options include:

Fixed Pricing

The rate is fixed for the duration of the contract. The options for fixed pricing include “all-in” or “energy only” contracts. Fixed pricing requires forward-looking intelligence to determine where the energy market is today and where it is expected to go throughout the term of the contract.

Index Pricing

An index pricing structure is essentially how the utility charges customers for supply. The pricing is an index price plus a supplier adder. Customers can typically purchase an index product through competitive markets at a rate lower than the rate charged by the utility.

Discount

A discount rate floats with the utility, but is discounted a certain percentage. Other pricing mechanisms that are advantageous to particular customers based on usage profile: “block and index”, “caps” and “collars”.

Terms

The contract term is a key component for any deregulated supply contract. Customers should carefully analyze forward-looking energy pricing estimates before locking into a long-term contract. All supplier quotes should provide pricing for multiple terms: 6 months, 12 months, 24 months, 36 months etc. Pricing for multiple term lengths will also provide insight into how the utilities view future energy pricing forecasts.

Options

An option contract gives customers the ability to lock into a fixed price per KWH contract to reflect current pricing at any time during a variable price contract.

First, you need to verify that your state is deregulated for the energy source you wish to purchase in a competitive market. Next you must determine whether you have the capability and expertise in-house to find the right supplier and products for your organization. Purchasing energy supply through a competitive supplier is risky if the purchaser in uninformed or unfamiliar with how energy markets work. Brokers and aggregators negotiate power purchase agreements on a daily basis and have a good real time feel for the market and where it’s heading. Oftentimes a broker and or aggregator can procure energy at much lower rates than an end-user could get on its own. Make sure to follow our energy deregulation checklist before determining the best way to purchase energy.

Energy Aggregators

Aggregation is the grouping of utility customers to purchase as a group. Pooling purchasing power could result in more favorable pricing compared to the individual members purchasing based solely on their unique usage. Developing the right energy purchasing strategy is a complex challenge for busy facilities managers or business owners wearing many different “hats” within an organization. A reputable and qualified energy aggregator or broker acting as an independent energy advisor can help guide the person responsible for energy costs. Outsourcing procurement often results in significantly higher savings for the end user while mitigating downside risk. Choosing the right partner is crucial to maximizing the advantages created through deregulated energy markets.

Advantages:

You can reduce internal administrative expenses and maintain focus on your core business. The energy market is complicated and it may make sense for you and your business to outsource procurement services to a company specializes in energy procurement to save you money and time.
You can share fees with other entities in an aggregation group. This is an advantage for any entity because you can likely spread the aggregation/broker fees out with the other entities in the aggregation group. Lower fees combined with more purchasing power will result in further cost reductions.
Suppliers are more interested and pay more attention (more competition) with a larger purchasing block. Economies of scale come into play for aggregators. The more KWH combined in an aggregation pool lowers the fixed cost/KWH and results in lower rates for the users involved in the aggregation group.
-Lower rates result from combining dissimilar user profiles. Some businesses use more energy in the winter months and others in the summer. Irregular usage may result in higher rates from competitive markets because the suppliers can’t forecast usage throughout the year. Joining an aggregation comprised of end-users with dissimilar usage profiles may result in lower rates.

Factors to consider before joining an aggregation:

Size of load – The amount of energy your building or business consumers during a period of time (Kwh or Btu).
Load profile – Your profile refers to how or when you use energy. Some businesses use approximately the same amount each month. Other businesses, for instance seasonal businesses, use more energy in some months and significantly less during other months. The inconsistent usage may increase pricing available to a particular customer.
Risk tolerance – Different products present different levels of risk. You should evaluate the appropriate level of risk for your firm before determining the best product.
Contract length flexibility – You should verify that the contract length for the aggregation group fits your particular risk profile and needs.

Tag Archives: energy costs

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Advantages of Energy Deregulation