When the history books are written, the storyline for the chapter on 2020 will be the Great Pandemic and the effects of COVID-19 on the economy, lives, and society in general. A key aspect of this impact on our lives has to do with usage, supply, and cost of energy. While energy usage went down among businesses, it rose at home as more employees began working remotely. This lowered commercial demand for energy led to a supply/demand imbalance that lowered energy prices.
All of these factors combined to create challenges for procurement professionals in managing their organizations’ energy needs while procuring energy supply in a manner that doesn’t lead to potential fees and penalties.
Many organizations have been able to take advantage of lower energy prices to secure savings and stabilize budgets now and in the future. The key to preparation lies in understanding the energy markets. Because of the increasing complexity in our global situation, more and more entities have turned to expert energy help to assist in this undertaking.
When engaging a quality energy advisor, there are several critical areas to evaluate:
- Wholesale Market Expertise
- Strategic Approach
The Value of Experience
How many times, as a procurement professional, have you heard vendors pitching their goods/services (regardless of the industry or the commodity) claim they are “experienced”?
When considering experience, it is not just the number of years in the industry (quantity), but it is the quality of those years. Tenure in the industry is certainly important, but your decision should never be as simple as hiring the guy with more years of experience.
A more accurate summary of experience would include a whole host of items in addition to how long it’s been a viable company:
- Company background: what are the major milestones and accomplishments?
- Organizational structure: how will the business operations support our needs?
- Management team: does solid leadership drive the company forward?
- Uniqueness/strengths: why should we choose them over the competition?
- Geographic reach: can they address issues for all of our locations?
- Client numbers, load managed, client types, references, case studies: do they employ best practices, and can they handle our needs?
- Number of vetted suppliers: do they work with all the major suppliers in the marketplace?
- Client retention/satisfaction: does this business have a track record of success with customer support?
- Financials: can this company prove their fiscal strength and endurance?
- Results, awards: what is the tangible evidence of this company’s “experience?”
When you are evaluating an advisory firm’s experience, don’t just ask, “How many years?” As we’ve illustrated, there is much more at play. The goal is to choose an advisor who can truly strategize and create a customized solution that will bring value to you, the client, for years to come. In discussing energy policy and how the markets may affect budgets, your truly “experienced” advisor will become a trusted team member on whom your organization will come to rely.
Wholesale Market Intelligence
When it comes to procuring energy, it is all about incorporating “wholesale market knowledge” into the process that leads to significant budget savings. The cost you pay as a consumer is directly related to the price your retail supplier pays for this energy in the wholesale market. As with any other commodity or product that falls under your jurisdiction as a procurement specialist, if you understand what that wholesale number is and why the price is set where it is, you will be much better prepared to negotiate the right price.
When selecting an energy advisor, you want to partner with one who has first-hand knowledge of the wholesale market. This intimate intelligence helps you see the “color” of the market: You’ll find out not just what the numbers are, but who is transacting and – perhaps most importantly – why they are making their moves. As a consumer, you can then better understand if the wholesale prices are moving up or down, short-term or long-term. Translated properly, this puts you in a stronger position to find those dips in the market that allow you to secure low rates over a longer period of time.
If you incorporate this concept into your evaluation and selection process when engaging an energy advisor, you will definitely be on the right track.
Taking a Strategic Approach to Risk Management
A strategic or “advisory” approach looks at a host of issues to bring multiple solutions and opportunities to the table – many of which the client was not previously aware existed. These additional solutions are based on the advisor’s in-depth understanding of the client. An effective advisor will take the time to get to know your organization’s future energy usage patterns, risk tolerance, exposure to the markets where you operate, and other services that intersect with the supply of energy.
The strategic approach is, at heart, a holistic solution. The advisor takes into account a number of factors affecting an organization and its particular energy management situation, including:
- Procurement of energy in deregulated markets
- Optimal tariff supply in regulated markets
- Organizational risk tolerance (aggressive vs. risk-averse)
- Optimization of load profile
- Exposure to peak-demand-based utility charges
- Management of energy usage data and spend
- Revenue opportunities from energy curtailment programs
- Organizational challenges to utility bill processing and payment
- Internal/external sustainability goals
This is by no means an exhaustive list, but it provides a glimpse of all the various elements that a knowledgeable energy advisor will understand and the bare minimum of what they must consider when creating a strategic approach to meeting the client’s needs.
The true role of an advisor is to broaden your understanding of the solutions available and how these could fit into your organization’s energy procurement goals. The energy landscape continues to change very rapidly. Procuring and managing the energy needs of an organization requires a proactive strategic approach to cover all the bases and reveal any new opportunities that further address the ongoing or future needs of the organization.
Independence is Key
When engaging an energy advisor, it is crucial that the advisor solely represents you and your goals – as opposed to the goals of some third-party affiliated supplier or vendor. Independence is only truly achieved when the energy advisor is not part of a larger energy efficiency company and is not directly affiliated with any particular electricity or natural gas suppliers. When you hire an energy advisor, it is for the express purpose of helping your organization attain the best energy policy to achieve your goals.
A conflict of interest arises when the focus shifts from benefitting the client to benefitting the advisor. This can be the case when working with an advisor who is not independent by virtue of either affiliation or ownership by an energy efficiency or equipment company. When an advisor is both trying to sell you energy-related equipment and help procure energy, both these functions can be at odds when calculating return-on-investment (the ROI is much more attractive if your energy rates are higher).
When choosing an energy advisor, be sure to investigate their affiliations – and steer clear of any that could be questionable. You’ll create a more unbiased and transparent relationship when you fully trust that your advisor is focused on managing your procurement needs.
A True Advocate for the Client
You want an energy advisor who sits on your side of the table and evaluates all options in a transparent manner, with your goals in mind. This leads to a valuable long-term relationship with a trusted partner who will guide you through an energy procurement process that best suits your organization – which is the ultimate goal of managing your energy needs.