Understanding the Energy Buyer’s Quandary
In the world of energy procurement, buyers are often faced with a critical decision: should the focus be on securing the lowest rate or the lowest overall cost? This choice is pivotal and shapes the entire approach to energy procurement, impacting both short-term and long-term strategies.
In discussions with both current and potential clients, I typically start our conversation by asking, “Are you aiming for the lowest rate or the lowest overall cost?” This question is pivotal as each buyer’s unique goals and metrics influence their response. How do you interpret this question, and what does it signify for your business? Your answer is crucial in guiding the advice I provide and might even influence your approach to energy procurement.
Understanding the Lowest Rate Approach
If you are tasked with securing the lowest rate for your company, you are not alone. Often your role is measured on the success of lowering rates from one contract (or vendor) to the next. However, the conversation around rate tends to ignore the conversation around risk, specifically contractual risk. Frequent policy changes, evolving environmental regulations, and the introduction of new incentives can create an environment of uncertainty for energy suppliers. How do they continue to gain market share in an extremely volatile and competitive market? The answer lies in the contract language. Many suppliers have opted to present optically lower rates, with contracts that allow for more pass-throughs or an annual bilateral adjustment. To navigate this dynamic regulatory landscape successfully, businesses must stay informed about current policies, anticipate potential changes, and adopt a proactive approach to adapt their energy procurement strategies accordingly. These contracts can work to your benefit if charges settle at less than what was anticipated and you, the buyer, is aware of the implications of the regulatory risk.
Understanding the Lowest Cost Approach
If you are tasked with securing the lowest cost for your company, you are also not alone. I typically have these conversations with the C-suite, the VP of Finance, or the VP of Operations. My next question to choosing the lowest cost is, “Are you looking for the lowest cost today? Or the lowest cost over time?” The conversation around lowering costs is a much more holistic one which often leads to more questions about what the future looks like for your business and opens up new products. Costs are subject to more variables than rates. Costs also factor in consumption, contract language, and possible green initiatives. When the conversation moves from rate to cost, a true energy advisor can make product recommendations far beyond the scope of broker services.
Advisory Role in Energy Procurement
If you’re responsible for your business’s energy procurement, I’m interested in your perspective on choosing between rate-focused and cost-focused buying strategies. In my experience, both approaches have their upsides and downsides. However, given the evolving market landscape and the complexities in contract language, it seems the trend is shifting away from rate-centric purchases. Collaborating with a fully transparent energy advisory, which offers insights into a wide range of vendors, can not only lead to financial savings but also significant time efficiency.
Struggling with your energy procurement strategy? Contact our team to continue discussions regarding the rate vs. cost debate and discover the best approach for your business.