Energy Purchasing: What to do in a Volatile Energy Market

Energy Purchasing: What to do in a Volatile Energy Market

The energy market has seen a lot of volatility lately and continues to be unpredictable in many ways. Right now, there is more risk that prices will increase rather than decrease. There’s a high probability that the electricity rates you’ve enjoyed over the last few years won’t be seen in the near future. You may be focusing on your last contract price, a budget target, a price someone else may have locked in.

If your new contract price is 50% higher than your last contract price, you may be inclined to wait and hope that the price comes back down. However, we are likely entering a period of higher prices driven by tighter supply markets, increasing environmental costs, and higher costs for resiliency (storms, grid stability, intermittent resources). 

Current Market Highlights

  • Depending on your region, natural gas or electricity generation costs have increased
  • In New York, basis is flat but natural gas prices have increased
  • In New England, both basis and natural gas prices have increased
  • The EIA is forecasting increased natural gas production, but it is already factored into the current market pricing, so we won’t see a positive impact on future prices for it.

With a volatile and ever-changing energy market, relying on the familiar by renewing the same energy contract with a “set it and forget it” approach is not recommended in most cases. How you purchase energy for your next contract renewal can bring your organization costly repercussions, or long-term advantages. Whether your energy contract is up now, in six months or in a year, making strategic, data-driven, and well-timed energy strategy choices now can pay big dividends well into the future. That is why, when it comes to energy buying, it’s critical to be an energy price-maker, not a price-taker.

What you can do now

Focus on what you can control

There are many costs that make up your total energy supply price; ancillaries, capacity and transmission are just a few. In some regions, these costs can make up nearly half of your total energy supply rate, but with some strategic planning, you can reduce these costs. Programs like Peak Load Management, Demand Response and energy efficiency initiatives can reduce your energy expenses and lower your carbon footprint to meet sustainability goals.

Be a price-maker, not taker

Price-makers keep their finger on the pulse of the energy market and make strategic decisions to lock in long-term, low energy rates when opportunities arise.

Rather than trying to time the market for a fixed-price energy contract, you can execute an energy procurement plan that allows you to take advantage of future buying opportunities without fully exposing yourself to price risk.

Purchasing portions of energy over time will mitigate energy price fluctuations that come from being “all in” with a 100% fixed supply contract or a 100% index contract. This strategy strikes a balance between establishing budget certainty and managing energy purchases to drive energy cost reduction.

Engage a Premier Power Solutions energy consultant

Premier Power Solutions can help you stay focused on the fundamentals in the marketplace and avoid gut decisions when data-driven insights would serve you better. Our process is grounded in a deep understanding of supply and demand drivers in commercial energy markets. We utilize data and analytics to help you think more objectively and make fact-based decisions regarding commercial and industrial energy procurement. We take the time to understand your unique business needs and craft an energy plan that meets your budget and risk management objectives. Once we help you craft a unique energy strategy, we continue to remain engaged with you and your team–alerting you to market trends and future opportunities.

The energy market is complex and continually changing – especially during these uncertain times. It can be difficult to interpret the myriad factors that influence the energy industry and how those changes impact your energy costs. Premier Power Solutions’ analysts and consultants are working with clients like you, providing real-time insight and developing a cost-efficient energy strategy that achieves business objectives and evolves alongside a changing market.

Ready to talk to an energy consultant?

Contact us.