Innovative procurement strategies for cost reduction and risk mitigation.
Procuring energy effectively is becoming more complex as new laws are issued and new energy sources come in to play. Each of these procurement strategies hedges against inherent uncertainties; each carries a different type of risk. Whether you are purchasing traditional grid power, certified “carbon free” power or power from a variety of renewable resources, any of these energy procurement strategies can be successfully employed, albeit in slightly different ways depending on the source of your power purchase.
Understanding the Market
To purchase electricity wisely, you must first understand the fundamentals of the electricity market.
- The electricity futures market is speculative and unpredictable. Pricing trends may continue or reverse.
- Prices are subject to change at any time in response to a host of drivers such as the economy, unexpected weather extremes, hurricanes, and regulatory and political events.
- The most advantageous buying opportunities open and close quickly, so it’s vital to continuously monitor the markets and strike on these market shifts to secure your energy pricing for the future.
Evaluating Pricing Options
Each of these pricing strategies hedges against inherent uncertainties. Each carries a different type of risk.
- Fixed Price
Most commercial energy buyers are familiar with fixed-price energy contracts. You pay a fixed price for energy for a defined period of time. This energy procurement strategy works best for businesses that require price certainty and budgetary control. 100% of the supply cost risk is on the supplier. Although it’s the more common method of energy procurement, it may not be the best strategy for every client.
This strategy is an alternative to fixing 100% of your energy supply price all at once. You can fix (or hedge) a portion of your energy supply while allowing the remainder to “float” in the market. This strategy strikes a balance between price certainty and the opportunity to take advantage of price declines in the future. Generally speaking, there are a few basic procurement product structures to choose from.
Well-executed hedging strategies can help companies mitigate price risk, more accurately budget and forecast, and provide flexibility.
Customizing Your Strategy
Usource’s proprietary technology, coupled with our deep market expertise, allows us to secure the best pricing available for our wide range of industrial, commercial, and institutional clients. Usource provides real-time market intelligence, gathered and interpreted by a dedicated team of experts whose primary focus is to help you execute on the best energy buying strategy for your business.