Market evolution is changing how companies strategically source and manage their energy. This new landscape opens opportunities for businesses to modify their energy consumption mix, with potential cost savings as a result. Increases in data-driven technology also help companies better understand their real-time, interval energy consumption and demand, which can provide the visibility required to curtail usage when prices spike or better negotiate contracts according to individual site consumption and demand patterns.
Strategic energy management can result in significant cost savings. But respondents to our recent corporate energy and sustainability research report indicated that strategic sourcing is only a top savings opportunity for their businesses 29% of the time. This means companies are leaving money on the table when it comes to their energy procurement and management. The research also found that companies that use strategic energy sourcing are more likely to explore and invest in innovative and complementary technologies such as combined heat and power, battery storage and renewables.
The rapid diversification of the energy generation mix means there’s increasing complexity in procurement. Renewable technologies are now some of the most affordable electricity sources in the world and the result is higher renewable penetration than ever before. This means that companies will increasingly see offers for renewable power intermingled with their traditional procurement portfolio.
The upside to this market evolution is that companies have the potential to save money and balance their generation sources, which helps to manage volatility and build reliability. But this opportunity also comes with a downside: the need to manage energy and risk in a more nuanced and strategic way.
Is your company ready?
3 Signs the Energy Market is Evolving
Market evolution introduces new considerations for companies to weigh as part of their overall procurement strategy. No longer is renewable energy an add-on for only the most progressive and environmentally-minded organizations. Rather, renewables have become a smart business strategy for companies of all sizes and sectors.
Some evidence of the changes being driven by market evolution:
- Renewables are becoming central to business. Corporate investment in renewable electricity continues at a rapid pace; 2018 was a record-breaking year with 13.4 GW of renewable energy contracts executed by corporations, and 2019 is predicted to follow this path. More than 150 corporations have committed to 100% renewable energy, with additional commitments coming from the public sector by cities, schools and other organizations.
- Energy buyers are becoming more sophisticated. At the most basic level, energy buyers that used to simply accept the traditional grid electricity mix and pricing are getting more strategic about how, when and what type of energy they use. Organizations that buy energy attribute certificates (EACs) are now exploring contractual instruments in some of the most challenging global markets to advance development and meet goals. Companies executing long-term power purchase agreements (PPAs) are testing new collaborative solutions, such as aggregated buying, and innovative contract terms and structures like cap and collar, or Microsoft’s VFA. Exploration and adoption of microgrids is on the rise. And some companies are exploring all these options—and more.
- To meet diverse goals, companies need cross-silo collaboration. It’s becoming imperative for companies to align on energy activities across traditional procurement, renewables, efficiency and sustainability, with data as the major intersection. Some companies go beyond simply aligning activities and sharing data; the most forward-thinking organizations expect to fully integrate sourcing and reporting for traditional energy and renewable energy into an active energy management strategy.
To learn more about the megatrends driving energy evolution, view our webinar.