Autor
Robert Quick
Founder & COO of trawa
The procurement of electricity plays a crucial role for companies and industries to optimize their costs and ensure a reliable, sustainable power supply. There are various forms of procurement such as fixed-price procurement, spot market procurement, and structured procurement, each offering its own advantages. When choosing the right procurement method, companies should consider their specific needs and goals. A tailored procurement strategy can help companies benefit from the advantages of different procurement methods simultaneously.
The Role of Electricity Procurement
Electricity procurement plays a crucial role for companies to optimize their energy costs and ensure a reliable power supply. A strategically thought-out procurement strategy allows companies to benefit from competitive industrial electricity prices, flexibility, and sustainability. In this blog post, we will take a closer look at the role of industrial electricity procurement and consider the various forms of procurement, the advantages of the right purchasing method, factors in selection, and best practices for effective electricity procurement.
Different Forms of Electricity Procurement
Companies have various forms of electricity procurement to choose from. Here is an excerpt for industrial electricity in comparison:
Fixed Price Procurement on the Futures Market
Companies can enter into long-term contracts on the futures market, where a fixed price for electricity is agreed upon for a specific period. This provides companies with stability and allows them to minimize price volatility. An example of this is a company that concludes a 5-year contract with an electricity supplier, securing a fixed electricity price for that period.
Spot Market Procurement
Spot market procurement involves trading electricity at the current market prices. Companies purchase their electricity on a daily or hourly basis, depending on supply and demand. This form of procurement offers flexibility and can be cost-effective during periods of low electricity prices. An example of this is a company that meets its electricity needs daily on the spot market and benefits from low electricity prices during a period of low demand.
Structured Procurement
In structured procurement, companies develop a tailored strategy to optimize their electricity procurement. This involves analyzing market data, trends, and price forecasts to identify the most advantageous procurement times. Companies can combine various tools, such as fixed-price contracts, spot market transactions, and other hedging mechanisms, to reduce costs and minimize risks. An example of structured procurement is a company that plans its electricity procurement based on market data and forecasts, strategically purchasing during times when lower electricity prices are expected.
A Comparison of Different Forms of Purchasing Commercial and Industrial Electricity
Comparison of Advantages and Disadvantages of Different Forms of Electricity Procurement
Fixed Price Procurement on the Futures Market
Fixed price procurement on the futures market offers companies certain advantages. Firstly, it allows for low risk exposure, as the price for electricity is fixed over a determined period. This protects companies from price fluctuations and provides high planning security. Companies can plan their energy costs in the long term and set budgets accordingly.
However, there are also some disadvantages associated with fixed price procurement on the futures market. The limitation of flexibility is one such disadvantage. Companies opting for long-term fixed-price contracts have less room to react to short-term changes in energy demand or the market. Additionally, this form of procurement may also present a lower opportunity for savings, as companies might not be able to benefit from lower electricity prices if they decrease during the contract period.
Spot Market Procurement
Spot market procurement offers companies certain advantages. One of these advantages is flexibility. Companies can meet their electricity needs in the short term and are not tied to long-term contracts. This enables them to adjust their energy requirements according to their current needs. Furthermore, there is potential for cost savings as they can purchase during times of low electricity prices.
However, there are also some disadvantages associated with spot market procurement. High price volatility is one such disadvantage. Electricity prices on the spot market can fluctuate dramatically, leading to uncertainty regarding energy costs. Companies must be prepared to deal with price fluctuations and, if necessary, accept higher prices.
Structured Procurement
Structured procurement offers companies various advantages. One of its main advantages is flexibility and risk diversification. Companies can combine different procurement strategies, such as long-term fixed-price contracts, spot market transactions, and hedging mechanisms. This allows them to spread their risks and benefit from the advantages of different procurement forms. Additionally, there is potential for cost savings as they can strategically plan their procurement times to benefit from lower industrial electricity prices. The predictability of energy demands also enables companies to structure their energy supply efficiently and plan their capacities accordingly. Furthermore, high-quality origin certificates can be obtained to demonstrate the sourcing of electricity from renewable energy sources.
However, structured procurement requires specific expertise and resources to analyze the market, develop suitable strategies, and conclude contracts. Not all companies have the internal capabilities or the necessary know-how to handle these complex tasks effectively.
Factors in Choosing the Right Forms of Electricity Procurement
Choosing the right forms of electricity procurement is a critical process for companies to meet their specific needs and goals. When deciding on the appropriate procurement form, various factors should be considered:
Company Size and Energy Needs
The size of the company and its associated energy needs play an important role in selecting the right form of electricity procurement. Large companies with high energy needs often have the opportunity to negotiate directly with electricity producers and secure attractive conditions. Smaller companies with lower energy consumption can benefit from standardized tariffs or direct procurement from energy suppliers.
Risk Appetite and Flexibility Requirements
The risk appetite and flexibility requirements of a company are other important factors in choosing the right procurement form. Some companies prefer long-term fixed-price procurement on the futures market to ensure price stability and planning security. Others prefer short-term spot market procurement to benefit from low prices and flexibility. Still, others opt for structured procurement to achieve a combination of flexibility, risk diversification, and cost savings.
Sustainability Goals
Companies pursuing sustainability goals may opt for the sourcing of renewable green electricity. This form of procurement allows companies to reduce their ecological footprint and contribute to environmental protection. This may involve purchasing certificates for renewable energy sources or directly sourcing electricity from renewable sources.
Market Knowledge and Negotiation Skills
Market knowledge and negotiation skills are also crucial factors in choosing the right forms of electricity procurement. A solid understanding of the energy market enables companies to negotiate the best prices and conditions while benefiting from current market changes. Experienced negotiation skills help companies secure advantageous contracts and protect their interests.
Best Practices for Electricity Procurement
Analyze Energy Consumption: Companies should analyze their energy consumption and understand when and how much electricity they need. This helps them accurately determine their needs and develop the right procurement strategy.
Market Observation: It is important to monitor the energy market closely to identify potential opportunities and risks. Companies should track and compare current industrial electricity prices, market trends, and political developments to make informed decisions.
Negotiation Strategies: An effective negotiation strategy is crucial in achieving the best conditions for electricity procurement. Companies should strengthen their negotiation position by utilizing market data and information, clearly communicating their requirements and expectations.
Diversification of Procurement Sources: Companies can spread their risks by utilizing various procurement sources. This can include sourcing industrial electricity from different energy suppliers, combining various procurement forms, or participating in energy auctions.
Energy Efficiency Measures: Energy efficiency measures can help companies reduce their energy consumption and save costs. By employing energy-efficient technologies, training employees in energy-saving practices, and optimizing production processes, companies can lower their long-term energy costs.
Partnerships and Collaboration: Companies can benefit from partnerships and collaboration with other businesses. By teaming up with other companies, they can strengthen their negotiation position, develop joint procurement solutions, and potentially achieve better prices.
Long-Term Planning: Long-term planning is crucial for anticipating potential changes in the energy market and preparing for them. Companies should regularly review and adjust their electricity procurement strategy to align with current needs and market conditions.
Conclusion: Optimize Energy Costs and Achieve Sustainability Goals through the Right Form of Electricity Procurement
Electricity procurement is an important part of energy management for companies. By selecting the right form of electricity procurement, companies can optimize their energy costs, ensure their power supply, and achieve their sustainability goals. Well-informed market knowledge, negotiation skills, and the implementation of best practices enable companies to develop an effective electricity procurement strategy that meets their individual requirements and objectives.
The field of energy procurement will undergo continuous change in the future. Technological advancements, new regulatory frameworks, and the increasing importance of renewable energies will influence the market. To remain competitive, it is crucial for companies to continuously inform themselves about these developments and adjust their procurement strategy accordingly.
With our structured procurement, trawa supports your company in making electricity procurement more efficient. We provide you with specific expertise and resources to analyze the market, develop suitable strategies, and conclude contracts. This way, you can find the best combination to reduce your energy costs and achieve your sustainability goals.
