If you have a routine energy procurement process, you can probably explain why you buy energy at the times that you do.
It may be time to renew your contract, so you establish the terms for your next deal just before your current agreement expires. Or perhaps you wait to procure your next energy contract during the spring and fall “shoulder seasons,” when more moderate temperatures are less likely to rattle forward energy markets.
The simple fact is that energy markets are fluid and can be affected by a litany of external factors. More often than not, there is no “best time to buy energy” that you can plan ahead for. Instead, the best time to buy energy could arise at any time.
Here’s a high-level rundown of how energy markets work, what can cause energy prices to fluctuate seemingly at random, and how you can set yourself up to capitalize when the time is right.
Understanding Energy Markets
Buying energy poses a challenge for most businesses because energy markets are traditionally volatile. Prices can fluctuate hour-to-hour, day-to-day, or week-to-week, based on any number of factors.
Weather is one of the most important factors affecting energy markets. Hotter temperatures in the summer drive demand for air conditioning and cooling load, usually causing electric demand to spike and prices to rise. Similarly, cold snaps in the winter drive demand for heating load, which drives up prices for natural gas. Since most energy providers in the US rely on natural gas to generate electricity, a spike in natural gas prices can lead to higher electricity prices.
But seasonal weather changes aren’t the only reason energy prices fluctuate. Other factors, like natural disasters, infrastructure developments, plant closures, geopolitical events, and regulatory changes, can all have a wide-reaching impact on energy prices. The recent Texas Eastern pipeline explosion is a good example of a sudden event causing unanticipated upward pressure on natural gas and electric prices.
So while seasonal temperature changes do have an impact on energy prices, they are one of many factors that contribute to the price you pay for energy, and not all of them are weighted equally.
An Example of an Unexpected Low-Price Opportunity
With so many factors at play, there is no standard “right time” to buy your next energy contract. The truth is that energy procurement requires frequent market monitoring so you can take advantage of opportunities as they present themselves.
If you’re only paying attention to energy markets right before your contract expires, or once or twice per year during the shoulder seasons, you would have missed out on this opportunity. However, if you are keeping frequent (i.e. monthly or quarterly) tabs on the market for your next energy contract (even if it starts in a year or more), you can act when opportunities arise. To learn more about turning temporary price drops into long-term savings, check out this article.
Who Has Time to Watch Energy Markets Around the Clock?
By now, you’re probably thinking that this all sounds like an intense process. But with the right tools, you can put your organization in position to capitalize on sudden pricing opportunities without disrupting your day job.
Alerts and notifications set up through energy intelligence software (EIS) can inform you of the best times to seize an opportunity to secure a good energy price. You can set thresholds specified to your budget requirements, so you are made aware if prices drop below the level at which you could start to reap significant savings.
Being proactive with energy procurement can stabilize long-term costs for your business. Those that are equipped to handle it as the complex, ongoing process that it is will get the full value out of their procurement process.
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