Energy Pricing Contracts
Let’s talk energy pricing contracts. As extreme seasonal weather patterns continue, it’s no surprise that electricity demand will continue to increase. As a result, there may be challenges with the available supply in order to support the needs of the grid, which causes utility prices to become even more volatile. During peak periods, prices spike proportionately to the stress placed on the grid by harsh weatherdirectly correlates with surging power prices—something many businesses likely haven’t factored into the energy budget plans. For this reason, it is crucial for companies to reevaluate their energy strategies and implement sustainable measures to offset weather-induced price fluctuations.
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A powerful solution to combat sky-high electricity bills is to hedge block and index energy pricing contracts with a Demand Response (DR) program. During periods of peak demand, DR reduces consumption and lessens exposure to extreme market price fluctuations, while simultaneously promoting greener operations and a more stable and resilient power grid.
Negotiating to buy power from a third-party supplier or local distribution company is unique to every organization. Finding the best solution for your business typically depends on many factors including objectives, budget, risk resilience and sustainability goals. Three of the most common contract types associated with energy procurement models include 1) fixed pricing, 2) indexed and 3) block and index.
The block and index approach offers more predictability in electricity bills while minimizing exposure to sudden energy price increases experienced during exceptionally hot and cold months.
Harnessing a Smart Energy Procurement Strategy
DR programs are a key component that should also be factored into your energy procurement strategy. These energy management programs allow businesses to automatically reduce power usage when the grid is threatened during peak demand or when real-time energy prices spike. DR program participants are motivated to adjust their energy usage through financial incentives and potential rebates from electricity providers. Opting in for DR allows companies to lessen overall energy consumption during peak demand without impacting customer or employee comfort or day-to-day business operations.
Some DR providers even offer unique avoidance tools for added savings and sustainability opportunities, allowing users to set a price cap within their DR platform by triggering building management and on-site SCADA systems to reduce consumption when electricity costs exceed the predetermined threshold. This is especially useful during extreme weather and supports a strained grid when power demand is high.
Pairing Block and Index with Demand Response to Maximize Energy Savings
Organizations should consider combining block and index with DR as a hybrid energy management approach. This method can help effectively navigate significant seasonal market price fluctuations and maximize utility savings. Businesses that utilize such a pairing can virtually manage specific operational loads that are vulnerable to market volatility. For example, during a DR event with preset specifications, a customer with a peak load of 250 kW can automatically reduce their energy usage by 15-20% in response to demand or price spikes. This minimizes spending when the market is unpredictable, or the business’s block and index contract is subjected to higher real-time costs.
Pairing DR with block and index contracts increases price predictability, offers controlled precision over the business’s energy strategy and saves organizations on utility bills while minimizing their carbon footprint.
Prepare for Seasonal Sustainability with Demand Response
During the high and low-temperature seasons especially, it’s crucial to have a strong energy plan in place. Combining DR with a block and index contract is a seamless way to get ahead of rising energy costs, manage power consumption and avoid painfully high electricity bills. In addition, utilizing this approach enables a more sustainable and resilient power grid.
With careful planning and the right energy resource management platform, your business can beat harsh summers and cold winters by taking control of utility costs to ensure efficient, sustainable and cost-effective energy bills.
About Enersponse:
Enersponse’s DR programs are at no cost or risk to customers and will support your company’s bottom line, especially when extreme weather patterns hit. Users gain access to financial earnings and savings while participating for free on their own terms. Companies can save even more on utility bills while reducing their carbon footprint this summer by opting in for Enersponse’s Price Response™ or Clean Response™DR avoidance tools. Visit https://www.enersponse.com/ to learn more.
About the Author:
With more than 20 years of professional experience and leadership in the energy sector, Doug Sansom serves as the VP of operations at Enersponse. With a background spanning smart grid, sub-station monitoring and demand response across four continents, Sansom has managed large-scale operations for residential demand response, commercial & industrial load management programs and utility programs throughout his career.
By: Doug Sansom, VP of Operations at Enersponse
