Your Guide to Energy Procurement Partners
You may have established a routine for your organization’s energy procurement, but have you considered whether you’re getting the most value out of the process?
Vendors approach you seemingly constantly, offering procurement services and making similar promises of finding the best price for your energy. Maybe you already work with a partner to help navigate a market in which you have little knowledge or experience. Maybe you do most of the work yourself, trying to just get the process done when it comes time to renew your procurement agreements.
Either way, it’s important to take a step back and evaluate the partners involved in the process. All third-party vendors will have their own abilities and motivation. If you work with a partner, you should know how their interests and the tools at their disposal align with your risk management, operational flexibility, and organizational strategy. Moreover, you should know whether they can actually obtain the best price for your energy.
Here’s a basic overview of the common energy procurement partners you’ll find, how they operate in the market, and what you should know about working with each.
Brokers act as “agents” that generally contract with one to three suppliers, connecting them with customers that need a new procurement agreement. Brokers will be devoted to establishing the agreement, and leverage their network of suppliers to get you an offer when you ask for it.
It’s important to think about the scope of suppliers that brokers have available to them. If a broker only gets three suppliers to bid for your business, how can you be sure that they actually obtained the best price available? You may be missing out on other suppliers offering lower prices simply because your broker doesn’t work with them.
Fees are another issue that you should be aware of. Typically, broker fees are linked with your energy consumption. So, in addition to the increased energy costs when your usage spikes, you’ll also pay more in broker fees.
Aggregators combine several similar customers into groups and seek agreements from suppliers based on the aggregate load. By bunching smaller customers with procurement needs into one larger customer for the supplier, the aggregator seeks to elicit a more competitive offer than each customer would get individually. They often offer subsidized credit and a lower risk premium, and seamlessly transition your organization between agreements. But if you don’t like the offer that the aggregator finds, you are not contractually obligated to accept it.
Typically, when working with an aggregator, you’ll be locked into a long-term contract at a fixed rate, which means you could miss out on opportunities for savings when energy prices drop. Few aggregators offer customer service or account management. In some cases, you’ll have to forfeit power of attorney regarding your procurement agreement.
Consultants are not directly tied to suppliers, but work on behalf of your organization to weigh the available options. That means their interests aren’t tied to those of anyone else in the market. Working with a consultant means bringing in a neutral source with independent advice and qualitative research, with the expectation that their process will be transparent.
However, small- and medium-sized enterprises may not be able to justify paying consulting fees, considering that they’re likely buying energy in smaller volumes.
Some consider working directly with the suppliers themselves. Suppliers own the generation and supply the power, and if you connect with them directly, you can procure your energy without relying on or paying a third party. There’s also the possibility that the suppliers will subsidize other offerings for your organization, such as demand response.
Suppliers are only really interested in large-volume deals, and do not necessarily benefit from getting their customers the best price for energy, particularly without competing offers. If they don’t have to beat another price, they have no incentive to offer you a better price. They’ll supply your energy, but they’re not likely to be transparent about the process. Supply costs can also get high, and fees tend to rise with energy consumption.
Technology Solution Providers
A solution provider combines the independent expert services of a consultant with advanced software tools. The software opens up the reverse auction to hundreds of suppliers, who drive the price for your energy lower as they compete for your business. The technology gathers the data to identify your procurement needs based on year-round operations and market availability, and the professional services provide an independent partner to evaluate the opportunities in the market with your organization’s interests in mind and ensure you get the best price for your energy.
Working with a solution provider requires re-evaluating how your organization and staff think about energy procurement. Energy procurement often isn’t given the same level of attention as other, equally critical parts of the enterprise. The experts can watch the markets for opportunities, and the software can automate alerts and parts of the reporting process. But your organization will need to approach energy procurement the same way it procures other valuable resources.