Reducing energy costs requires a structured approach
Achieving optimal energy cost for businesses requires a structured approach. Reducing consumption is critical to achieving long-lasting savings. An energy strategy is a lot more than simple contract management as the lever for saving.
A structured approach is key to reducing energy cost is critical
Managing energy cost for businesses requires a blended approach. That is reducing consumption, maximising efficiency, self-generation and smart management of contracts.
It is no longer viable for a business to negotiate a lower cost per kwh and expect longer-term savings. The wholesale energy market is in an inflationary price cycle. The cost of supply is increasing and there is a greater focus on renewable technologies.
Further, the incremental benefits of longer-term energy supply contracts are being eroded. Market power has transferred to the energy retailers.
There has not been a better time to look at reducing consumption through energy efficiency. Or solar.
Your ability to reduce costs in your business will depend on your industry, size and the type of premises. This a general guide for business so use it to understand your opportunities.
Where is the energy market at?
The current energy market has seen a significant increase since 2014. This coincides with the deregulation of energy providers as well as other market forces.
The cost of supply has increased due to two forces. The drive to renewable energy is starting to reach maturity. This in the past few years has also forced an increased cost of supply. Part of the reason for this is the inability of renewables to deliver consistent supply in peak times.
What this means for businesses is twofold. The ability to negotiate the same rates long-term as they did before 2014 is more limited. Many businesses are facing increased electricity costs in the short to mid-term.
There is now a better opportunity to invest in solar and energy efficiency. With higher energy prices, the ROI is more attractive than ever.
Where can you save on energy costs?
In order of energy cost reduction from largest to smallest, here is our simple guide for business.
The greatest saving potential for many categories is simple. Reduce consumption. While this seems easy to say – there are many opportunities that need minimal capital. Some may also be cash flow positive from day one.
Many businesses have implemented simple initiatives. Smart controls on lighting and timers on air conditioning are some. Most have also delayed investment on energy efficiency. The ROI on energy efficiency investment was difficult with low energy prices.
Now energy prices have risen and self-generation technologies are more efficient. So the ROI has become more attractive than ever before and into the foreseeable future.
Another factor to consider is the availability of government subsidies and funding. These have been under-utilised in years past.
Solar Panels / Self- generation
The ability for many businesses to generate their own electricity can save a lot. It can also future-proof the price of energy for up to 15 years.
It could be as simple as roof top solar panels. With a greater focus on sustainable technology there are options to generate 100% or as little as 20%. The nature of your business will determine how viable it is.
If it has been over 3 years since you last looked at it, then it is time to look again. Technology and product design has progressed since then. Products such as solar are more efficient and as much as 70% cheaper for every dollar you invest. Couple this with energy that costs 50% more than in 2016 and you may want to re-examine your business case.
There are also more complex opportunities such as co-generation via gas or wind. The simple and effective option for many businesses is solar. It leverages an existing empty space and is quick and easy to install.
All businesses should look at their energy supply contracts often. For small users it is as simple as comparing the market rates and negotiating hard. For larger users or those with many sites, it is a little more involved.
Businesses have a range of options for how to buy their energy supply. Through brokers, direct deals or through reverse auctions.
Supply Clusters can help you through the process. We work with businesses of all sizes to help them determine the right approach. Then support them through the implementation process to delivering energy cost savings.
We partner with a range of organisations to support the right solution for your business. You can find out more about energy supply here.
Where can we help you?
Supply Clusters works with businesses of all sizes. Especially those larger companies who need support to work out the best approach for them.
We have worked with large not-for-profits and commercial businesses across many industries. If you are unsure where to start, all it takes is a no-obligation discussion to get started.