Gregory Borel shares a company post that outlines how to reduce energy costs.
The energy landscape is undergoing rapid transformation becoming more sustainable but increasingly complex. Meanwhile, commodity markets are becoming more volatile, resulting in record-high energy prices.
Never has it been more important for businesses to develop an energy strategy to mitigate and manage – and take advantage of – these uncertainties and complexities.
The proposed strategy of different players can be categorised according to the graph below. Four categories of energy users are captured defined by their energy cost as a fraction of total cost, and by the value creation opportunities they have whilst going about their business – or, to put it differently – the business’ ability to generate revenue from buying and selling energy should they choose to manage their energy differently.
This category refers to businesses for which energy is non-core but can still be part of their offering, e.g. large real estate companies. These companies should be creating value by supplying energy. They need to understand their own energy procurement requirements and how energy efficiency and flexibility fit into that.
This means that they should think about their customers’ needs and operations, which dictate their energy requirements and help them reduce their energy consumption or avoid peak hours. By using less or less expensive energy they can create profit for their business. Developing insight into how energy prices may change in the future would also be a useful capability to develop. However, a subscription service offering insights into markets, industry standards and electricity prices is a good place to start.
Key questions for ‘Opportunistic’ players to answer are:
How can I avoid peak hours?
How can I reduce my energy use?
How can I serve my customers’ needs?
Can I create value from energy storage in the future?
Companies that fall under this category deal with big volumes of energy in their operations and energy is also a primary component of their offering. They have a good understanding of the different procurement types and of the direction of their asset value; their primary objective is to start thinking about how to make a margin out of their energy use. Data centres are a classic example; investing in understanding energy efficiency and flexibility strategies is crucial.
Key points include:
- Smart outsourcing
- Basic procurement
- Behavioral change
Read the full article, What you need to know (and do) about your energy, on Ampersand.Partners.com.