Organizations generally take their energy procurement for granted. They do so at their peril. The case of a high energy consuming company in Alberta provides a cautionary tale.
This company signed a long-term contract while power costs were high in 2013 – at around $80/MW. By 2016, power prices had plunged to $18/MW. Yet, under the contract terms, the company was committed to paying a much higher rate.
About this time, they reached out to 360 Energy. After assessing their situation with them, our advice was that they should buy-out their contract and instead, purchase power on the Alberta Electricity Systems Operator’s hourly market. For the next year and a half, the company reduced its power costs by 33% relative to the contract price they had previously been committed to paying. This translated into $42,000 in savings, after taking into account the cost of buying out their contract.
360 Energy market surveillance through the 2019 calendar year suggested there was a risk of rising prices in Alberta as some coal plants were slated to be retired. In continuing the dialogue with this customer, we advised they should enter into a reasonably priced one year contract. The move saved them an additional 9% relative to remaining on the hourly market without a contract. The one-year contract took them off the price volatility roller coaster during some of their highest-use months.
By developing an energy market procurement strategy, this company realized multi-year savings and avoided numerous nasty utility bill surprises.
Time and again, we at 360 Energy see companies struggling with their energy procurement. This is why we closely track power markets. We learn the needs electricity customers have. We work with companies to integrate these insights so they gain the knowledge to build a robust procurement strategy. Each strategy is flexible and customized by the individual customer to fit their situation.
Sometimes the market is the place to be. Sometimes it is best to have an energy supply contract. A good procurement strategy will take each approach into account while reflecting the business’s unique risk tolerance levels.
Many companies, year after year, take the same approach to their energy procurement without regard to market conditions. Some may simply renew contracts with their supplier at the same time each year. Others might just stay on the market without any thought of ever locking in. Either approach to procurement is an easy default position for companies with little information of market risks and opportunities.
Companies that integrate market knowledge into their procurement strategy traditionally see savings. Knowing when to sign a contract and when to stay on the market enables organizations to capitalize on prices when they are cheap and avoid large cost fluctuations when the market is volatile.
Company owners and executives have peace of mind once they realize their procurement strategy is no longer riding the electricity market roller coaster.