With so much pressure to cut operational costs, many businesses are looking to new approaches to how they buy energy. By taking advantage of the competitive nature of energy suppliers in the market, these companies are securing better prices in their supply contract than they had previously thought possible—and reaping significant long-term savings as a result.
Of course, this approach is nothing new. Brokers have long solicited offers from multiple suppliers. But new technologies are bringing the potential to a new level, providing easier access to more suppliers and pushing them to offer better prices and terms for their customers.
Let’s take a look at an example to see how one energy-intensive business was able to secure six-figure savings through a reverse auction for its energy contract.
How Does the Online Auction Work?
First, here’s a bit of background on the reverse auction process. Unlike the bidding process of traditional energy brokers—which often only solicit offers from one to three suppliers—the online auction process has access to hundreds of suppliers nationwide. When an organization decides to pursue an auction, energy experts run analytics to get an understanding of their energy and financial needs, then create electronic RFPs to solicit to the suppliers in the organization’s market.
These suppliers are then brought together for a blind auction. Suppliers vie to win the contract with better prices and terms for the customer. As time runs down on the auction, these suppliers can even end up undercutting their own previous bids, leaving the customer with the best possible price on the market.
A Real-World Example
Hotels are often burdened with significant energy costs, spending an average of $2,196 per available room every year, according to an ENERGY STAR study. And since the nature of their business prevents them from being able to fully control energy consumption at all times, securing a better price for energy is an effective way to reduce those costs.
For one hotel owner in New Jersey, the potential savings through energy procurement were already clear. Prior to participating in the auction, the company had begun exploring new ways to secure better energy prices for three sites. In fact, one of the hotels nearly withdrew from the auction after receiving a price from a third-party broker that executives had considered “unbeatable.”
Fortunately for them, the company decided to enter the auction for all three properties instead.
Over a one-hour period, 14 suppliers submitted 136 total bids. In total, the three hotels secured $370K in savings over a 24-month term. And the hotel that nearly withdrew from the auction obtained a price that was 12% lower than the broker’s ”unbeatable” offer—resulting in $70K annual savings for that one site.
While the auction process is valuable, it’s just one of many critical aspects of smarter energy buying. The process also requires the ability to understand how to use energy markets to your advantage and create a pricing strategy that aligns with your organization’s financial and risk management needs.
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