Can Energy Management Decisions Create Better Business Outcomes?

In today’s fast-paced business world, key decision makers have little time to focus their attention on matters that fall outside of their purview. As such, it can be hard to find time to address energy management and its impact on business outcomes.

Many decision leaders may simply view energy costs as a basic and static part of doing business. But in truth, the energy industry is always changing. The fluid nature of the energy industry, therefore, requires that you sometimes assess the link between your business, your energy needs and your bottom line.

In order to understand how your energy management decisions impact business outcomes, it is important to first understand how your power rate is generated.

The three components of your power rate

Power rates are calculated based on three main components: generation, transmission and distribution. Because every business has unique needs, and because access to certain types of power can vary by location, it is important to educate yourself about how these components factor into your costs to make informed decisions.

Let’s take a closer look at the impact of these components on the cost of your company’s power rate.

Generation: The cost of generation is often read as the price at which electricity must be sold to consumers to cover a power plant’s operating expenses. These expenses include fuel, capital and operations and maintenance costs.

Different types of power plants rely on different resources to generate electricity. As such, location plays a big role in the costs your company will incur to cover the expense of generation. Coal, water, wind, solar and nuclear power plants all have unique operations. This means that the price at which electricity is sold may vary.

Transmission: Transmission is the process by which electricity is distributed from its source of origin throughout the interconnected network of power lines commonly referred to as the electric grid.

The key behind the cost of transmission is network service peak load (NSPL). NSPL is calculated using a region’s five peak hours from the previous 12 months. Once peak hours are defined, utilities calculate an NSPL for every customer based on their usage during those hours.

Transmission costs can be impacted by factors that are out of the control of consumers. These factors may include weather and capacity. Although, businesses can control costs by either purchasing at a fixed rate to avoid possible cost corrections later in the year, or developing an energy strategy with a trusted supplier.

Distribution: Transmission and distribution both involve the movement of energy that ultimately arrives at your home or business. Energy transmission is the mass movement of electrical energy that is dispersed throughout the grid and into local substations. Distribution, on the other hand, refers to the process by which that electricity makes it way from the substation to its final endpoint.

A number of factors affect the cost that businesses incur for the distribution of energy: the fuel type, operational costs of power plants, grid costs, weather conditions, governmental regulations and even which type of customer you happen to be. Residential customers, for instance, typically pay higher costs. Commercial entities pay marginally less, while large industrial operations enjoy the lowest prices.

The best way to manage your distribution costs is timing consumption. Prices rise during peak demand hours. You can reduce energy costs by timing high energy tasks for off-peak hours.

If your business is based in a state with a competitive energy market, you may have the option of choosing from a variety of retail energy providers. Rates and reliability can vary, so it is vital to select a trusted supplier for the best long-term results.

A number of factors and costs related to energy decisions are out of your control. However, it is possible to manage the risks and volatility of business needs by developing an integrated energy management strategy.

The role of renewable energy

Over the past several years, renewables have become a force in the energy industry. In many cases, renewable sources like wind, solar and geothermal aren’t just more environmentally friendly—they’re also more cost-effective than energy generated from fossil fuels.

There is a lot of diversity when it comes to renewables. Some businesses can benefit from the installation of an on-site system. Others still may find more benefit in procuring their energy from a third-party, off-site supplier. Also, costs may be driven down further by government tax incentives and supplier programs.

There is another important way in which adding renewables to your energy management decisions can lead to better business outcomes: improved brand perception. According to a 2015 Cone Communications study, 90 percent of consumers would switch brands to one associated with a social or environmental cause.

Employees are guided by their concern about sustainability efforts as well. In fact, a 2016 Cone Communications study found that 51 percent of people will not work for a company that doesn’t have a strong commitment to social and environmental issues. Including renewable energy into your decision making can help your company recruit, retain and engage personnel, bolstering your bottom line.

The availability of renewables and related financial incentives can vary from state to state.

The light bulb moment

Business leaders today cannot afford to ignore the way in which they address energy management. The energy industry is undergoing rapid change, mainly with the growing adoption of renewable energy sources. As such, your business may have new changes to manage its costs.

Taking the time to implement a more responsible and diverse energy management strategy can also endear your brand to modern consumers—and employees—that support businesses that share their social values.

At Constellation, we are committed to helping you understand not only which energy management strategy is best for your company, but why. Education is key to making the right energy management policy to drive your business outcomes. To learn more about our solutions for helping you manage your energy costs, contact your Constellation representative or request a quote today.