Four Key Takeaways for Your Energy Purchasing Strategy2 min read
Today’s competitive power markets are experiencing both forward curve and index pricing volatility that hasn’t been seen for over a decade. Energy users within competitive retail power markets should consider taking advantage of the benefits available to them, including choosing their energy supplier, such as Constellation, and the ability to structure their electricity procurement strategies in a way that can capitalize on both price and risk.
Recently, Constellation updated a whitepaper (previously published in 2018), compiling and analyzing the price-performance and level of the associated risk of 73 hypothetical power purchasing strategies deployed against a baseline customer load profile over an 11-year period. Here are four key takeaways from the white paper:
1. Start with a strategy
Customers in states with competitive retail power markets enjoy flexibility when it comes to their power supplier and how their power purchases are structured. This versatility means they can tailor a power purchasing strategy to their unique needs.
2. Understand your usage and load profile
To arrive at a solid power purchasing strategy, consumers should know about their unique variables, such as:
Load profiles, including how and when power is used;
Usage Patterns, including on-peak vs. off-peak, seasonal, and hourly usage patterns.
3. Once a strategy is in place, how one purchases their power requirements matters
The research detailed in this paper found that including a layered power purchasing component in the procurement strategy improved that strategy’s performance from a risk avoidance perspective. The purpose of including a layered-in approach is not necessarily to achieve a lower price outcome but rather to lower the risk of the price outcomes over time. This is similar in purpose to the dollar cost averaging investment strategy used in many financial investment situations. Meaning, that despite the changes in power market conditions, one truth remains constant: A layered-in purchasing strategy may be the better way to purchase power for most businesses which seek to mitigate risk. A more sophisticated layering method might include disproportional fixed price purchases that allow for smaller purchases when forward prices are relatively high and larger purchases when forward prices are relatively low.
4. Having a purchasing strategy is important and makes a meaningful difference
Regardless of different market conditions, one truth remains constant: a blended strategy is the better way to purchase power for most businesses. While there is no silver bullet, or single purchasing strategy, that is always the best, power buyers can lower risk, proactively manage their budget, and realize risk avoidance when taking the time and effort to develop a managed approach to buying their power.
Download the “Evaluating Power Purchasing Strategies for Your Business” white paper today to learn more.