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Guide: Energy Procurement Strategies for Smart Buildings

9 July 2024

What is an Energy Procurement Strategy?

An energy procurement strategy is a comprehensive plan designed to manage the purchase of energy for a business. It involves understanding the energy needs, exploring various procurement options, analysing market trends, and negotiating contracts. The ultimate goal is to secure energy at the best possible price and terms while aligning with the organisation’s financial and sustainability objectives.

Objectives of an Effective Energy Procurement Strategy

An effective energy procurement strategy aims to:

  1. Minimise energy costs
  2. Ensure a reliable supply of energy
  3. Enhance sustainability by incorporating clean energy sources
  4. Mitigate risks associated with energy price volatility
  5. Align with the business’s overall financial and operational goals

A step-by-step guide to energy procurement strategy

1. Assessing Your Business’s Energy Needs

To develop a robust energy procurement strategy, it’s crucial to assess your business’s energy needs thoroughly. This includes:

  • Financial Objectives: Determine your budget for energy procurement. Analyse historical energy usage and costs to forecast future needs and expenses.
  • Sustainability Objectives: Identify your goals for reducing carbon emissions and integrating renewable energy sources.
  • Risks: Evaluate potential risks such as energy price fluctuations, supply disruptions, and regulatory changes.
  • Leveraging Energy Monitoring Solutions: Implement energy monitoring systems to gain real-time insights into energy consumption patterns, helping to identify inefficiencies and opportunities for cost savings.


2. Exploring Energy Procurement Options for Businesses

Businesses have several options for procuring energy:

  • Fixed-Rate Contracts: Lock in a fixed price for energy over a specified period.
  • Variable-Rate Contracts: Prices fluctuate based on market conditions.
  • Green Energy Contracts: Purchase renewable energy directly from suppliers.
  • Power Purchase Agreements (PPAs): Long-term agreements to buy electricity directly from a renewable energy project.
  • Large-scale Energy Agreement Procurement (LEAP contract): The LEAP contract streamlines and accelerates the procurement process for large-scale renewable energy projects, reducing negotiation time significantly by 80%. Google, for example, has used LEAP contracts to expedite PPA negotiations, opening bids on four RFPs in a single year

 

3.  Analysing Energy Market Trends

Understanding energy market trends is vital for making informed procurement decisions. Currently, there’s a significant shift towards clean energy:

  • Renewable Energy Growth: Increasing adoption of wind, solar, and other renewable sources.
  • Government Policies: Incentives and regulations promoting clean energy usage.
  • Technological Advancements: Innovations in energy storage and smart grid technologies.

 

“31 corporate customers said they made clean power procurements, up 31% from the same period in 2022.”CEBA’s deal tracker



4. Mitigating Risks in Energy Procurement

Mitigating risks involves strategic planning and continuous market monitoring:

  • Diversification: Mix of different energy sources and contract types.
  • Forward Contracts: Lock in prices for future energy needs to avoid market volatility.
  • Market Monitoring: Regularly track energy market trends to make timely adjustments. 

For instance, an energy consultancy saved northern Illinois clients over $3 million on natural gas bills in February 2021 through strategic risk management, including negotiating lower prices and using forward contracts.

 

5. Negotiate Energy Procurement Contracts

Effective negotiation of energy contracts can lead to substantial savings:

  • Prepare Thoroughly: Understand your energy needs, market conditions, and supplier offerings.
  • Leverage Data: Use energy consumption data to negotiate better terms.
  • Consider Long-Term Contracts: Long-term agreements can offer price stability and cost savings.

 

6. Leveraging Technology for Energy Procurement

State-of-the-art tech solutions can enhance energy procurement long-term:

  • Energy Management Systems: Track and optimise energy usage.
  • Automated Procurement Platforms: Streamline the procurement process.
  • Data Analytics: Provide insights into consumption patterns and market trends



7. Implementing and Monitoring Your Strategy

Once your strategy is in place, ongoing monitoring and adjustments are crucial for controlling costs and improving efficiency by tracking energy usage patterns:

  • Regular Reviews: Periodically review your strategy to ensure it remains aligned with your financial and sustainability objectives.
  • Performance Metrics: Track key performance indicators such as cost savings, energy efficiency, and sustainability progress.
  • Continuous Improvement: Adapt to changes in the energy market and technological advancements.

Conclusion

The future of energy procurement will be heavily influenced by the growing emphasis on clean energy and the inherent volatility of the energy market. The unpredictable nature of this market, driven by geopolitical events and fluctuating demand, calls for a more strategic approach to procurement. Implementing a comprehensive energy procurement strategy not only reduces costs but also enhances sustainability, ensuring a smart and efficient energy future for your business.

 

A Smart Building IoT Platform can play a crucial role in this transformation by optimising energy use, reducing waste, and integrating renewable energy sources. By leveraging real-time data and advanced analytics, businesses can make informed decisions, improve energy efficiency, and contribute to a more sustainable future.