Last year's energy spend, next year's reduction goals, energy market forecasts: these are the variables energy procurement managers most often consider when forming their energy procurement strategy. "How much operational flexibility do we have in the coming year?" is a much less frequently asked question, but one that plays a significant role in how you should structure your next energy contract.
Operational flexibility—the extent to which your sites can reduce energy usage on demand—should help guide whether you fully fix your energy prices for the next year, buy your energy on the spot market, or do some of both.
Sites with high degrees of operational flexibility can often afford to buy more of their energy on the spot market (where average prices over the long term are cheaper) because they can reduce usage during momentary price spikes.
Sites with no operational flexibility need to understand the risk associated with overexposure to the spot market. Despite attractive prices, having to keep running during periods like the 2013-14 polar vortex will end up slashing any savings you might've gained by buying from the spot market. These sites are much better off at least partially hedging themselves from real-time price exposure, and fixing their energy contract in advance.
In the second episode of our "How to Buy Energy Like a Pro" podcast series, energy advisor Ryan Barry talks through the ins and outs of operational flexibility, and how you can use it, or the lack thereof, to your purchasing advantage.
If you missed the podcast's opening episode, catch it first to get a quick overview of how energy markets have changed in recent years, and what market factors matter most in your purchasing decision.
