Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Importance of Energy Procurement

Having great energy procurement is essential for your business, especially if you want to save money. Energy procurement allows you to have control over whom you will contract to get the energy needed for your business operation. Additionally, you will have control over your business expenditures regarding energy rather than the local utility ordering it to you. 

What Makes the Prices Increase?

The world has been enduring the effect of Russia’s invasion of Ukraine. It has disrupted the market and geopolitics of energy as Russia is the largest oil exporter to global markets. 

Russia also fuels the European economy through its natural gas. With this, the prices of oil and gas skyrocketed to their highest level making countries reconsider their energy supplies.

The high price of gas and oil has caused a series of effects. Gas prices matter not just for filling up car tanks but also for transportation. 

Because the cost of gas increased, the transportation cost will soar which will affect the prices of goods and services. The war has exacerbated the inflation due to the scarcity of supplies as demand rises. 

Higher oil prices can greatly affect economic growth. People and companies will spend more on oil and gas which will affect the GDP of each country.

Different Kinds of Energy Contracts

Energy contracts aren’t limited to one type. Knowing the different kinds would help you understand what exactly is the right contract for your procurement. Here are the different kinds of Energy Contracts:

1. Fixed Contract

A fixed contract is a fixed electricity pricing plan that allows you to secure a set price. This contract lasts depending on the duration that is stipulated in it. The duration may be long-term or short-term. 

Even if the market fluctuates, the kilowatt-hour stays the same over the term. Although the price per kilowatt-hour can be subject to adjustments due to amendments in law. Commonly, customers use this so that they can budget immediately for the month. 

Fixed contracts are beneficial in volatile markets, especially those prices that continue rising. However, if the market prices suddenly drop, you will not benefit from it. This is due to the fact that you are locked to the terms of the contract. 

2. Indexed Electricity Pricing

Indexed electricity pricing is the polar opposite of fixed contracts. It is set through the market settlement price. In other words, it is directly determined by the market conditions. 

The risk is high when it comes to indexed electricity pricing. But it also yields big savings if it is done perfectly. 

3. Block and Index

Block and index strategy combines the elements of both fixed pricing and indexed electricity pricing. There are various ways to blend them that will benefit you. But the best approach to this depends heavily on your business needs and its risk tolerance.

With this strategy, you can decide to do a 50-50 blend to your contract. This means that the 50% is charged at a fixed rate while the other half is charged at an indexed rate. Basically, the terms will be dependent on what you want and what you think will benefit you the most. 

Entities Involvedin the Energy Procurement Process?

In addition to knowing the different kinds of Energy Contracts, it is also essential to know the entities involved when it comes to energy procurement. Here are the entities involved in energy procurement process:

1. Energy Customer

The energy customer is the business or a person who is thinking of purchasing energy. It may hire someone who is an expert in the energy procurement process to develop cost-saving energy procurement strategies. 

2. Energy Supplier

Energy suppliers determine your rate and your contract term. It can be a private, wholesale, or retail company that provides energy to customers. Furthermore, you must compare the available options before you choose to get the best plan for your business. 

3. Utility Company

Utility companies are the ones who are responsible for distributing energy to their customers. Additionally, it is the one in charge of servicing outages and emergencies.

Some utility companies generate their own electricity to distribute it to their customers. While others contact third parties to purchase energy from independent power producers. 

4. Energy Broker

The energy broker serves as an intermediary for customers and producers. Energy brokers negotiate things with your business to find the best match for your needs. 

Benefitsof Energy Procurement

Energy procurement gives a number of benefits depending on your organization’s need for energy. Here are the few benefits of energy procurement:

1. Control over your plan

An efficient energy procurement strategy can help you to have control over the costs and contract terms. With an energy procurement strategy, you can freely choose a term that best suits your business that will benefit you greatly. You can also have control over your billing material schedules.

2. Greater reliability

Having an energy procurement strategy gives you an informed forecast that is based on research and reports made by your broker or supplier. This will allow you to track your usage which creates a predictable and consistent energy bill. 

3. Energy savings

Searching for great deals in energy procurement will save you money. It can make you secure rates that are low compared to others which will reduce energy costs. 

How to Negotiate the Best Deal When Procuring Energy? 

Here’s how to get the best deal when procuring for energy. Follow the following steps:

1. Compare the market

The market is extremely competitive. Because of this, suppliers are under pressure to lower their prices to gain new clients. 

You should compare the prices across the full range of large and small energy suppliers. This allows you to ensure that you will get the best deals in the market. 

2. Understand your business needs

The energy procurement broker that you will hire can greatly assess your business which will make you understand its needs. With this, you will know how your broker matches your specific needs. 

Understanding your business needs allows you to negotiate the best contract that will give you the best energy prices. 

3. Engage the market when it offers good value

You should check the prices in the market regularly and not just when your contract is about to expire. If there is pricing that matches your requirements, then you should secure it before it disappears. 

Conclusion

Energy procurement is a crucial aspect of business operations, influencing costs and sustainability. This guide illuminates its significance, offering insights into the procurement process, influencing factors, and contract types. After reading, you’ll grasp the complexities of energy procurement, enabling better decision-making for your business.