How to control the top 3 energy cost drivers
How to control the top 3 energy cost drivers
Today's volatile energy landscape is driving urgency for organizations to take control of their energy costs. But developing an energy cost reduction strategy requires focusing on the key drivers that determine energy costs. Discover what these three drivers are – and the energy solutions needed to address them.
Price hikes, supply and demand unpredictability, and extreme volatility have been key trends driving organizations to enhance their energy strategies to help them stabilize their energy costs. Taking better control of your organization’s energy costs requires focusing on three key cost drivers: how you procure energy, how much energy you use, and when you use energy. By focusing on these three factors, you can reduce your monthly energy bill while improving your energy productivity – your ability to make more informed decisions about energy use, reduce the time you spend reporting on and managing energy spend, and shielding your organization from risk.
In this blog, we’ll dive into each of these three key cost drivers and outline some energy solutions that can help you control each of these cost components. Because the cost drivers for energy are interconnected with each other and with your unique business objectives, controlling them will have a positive impact on other areas of your business as well – finance, operations, labor, etc. Let’s break them down together.
Energy cost driver #1: How you procure energy
One of the biggest factors that affects your energy costs is how you procure energy. There are several ways to procure energy, including through your local utility company, an energy retailer, a renewable energy developer, or on-site energy generation and storage. Oftentimes, procuring energy – especially clean energy – isn’t as simple as paying a monthly bill. Have you secured the best price per kWh on your contract? How exposed are you to market risk? Have you fully unpacked the cost components of your supply?
The way you procure energy can have a big impact on your energy costs. Where retail energy competition is available, a reputable energy retailer is an easy alternative to your local utility. Energy retailers often offer lower rates and greener options than your local utility company – Enel, for instance, provides retail energy from assets that include Enel’s own renewable generation portfolio. It’s important to do your research and choose a reputable supplier. Be sure to read reviews and compare rates before making a decision.
For organizations with a strong decarbonization objective, there are a plethora of renewable energy solutions, including:
- Installing your own on-site renewable generation like solar and battery storage
- Entering into a physical or virtual power purchase agreement
- Signing a green retail energy supply contract
- Purchasing renewable energy certificates
You can learn more about these options in our eBook “Decarbonization with Renewable Energy.”
Energy cost driver #2: How much energy you use
Another key factor that affects your energy costs is how much energy you use. The more energy you use, the higher your energy bills will be. Put a different way, the cheapest kilowatt hour (kWh) is the one you don’t use. Think how much your wasted kWh are costing you. But do you know where the most waste is occurring across your organization’s energy infrastructure? And do you know where to start looking?
Knowing how much energy is used in any given hour or minute is a leading indicator for identifying potential sources of energy waste and understanding the status of your energy infrastructure. From there, actionable insights and recommendations for energy conservation can be implemented to unlock:
- Permanent energy reduction: Upgrade to more energy-efficient appliances and equipment, which use less energy and can help you save money on your energy bills.
- Smart energy reduction: Implement smart energy practices to reduce energy usage when it’s not needed. Strategies may include turning off lights when they’re not in use, adjusting the thermostat to a more energy-efficient temperature, and unplugging electronics when they’re not in use.
Energy cost driver #3: When you use energy
Not all kilowatts are created equal. Peak demand charges on your energy bill, for instance, can wreak on your energy budget. Do you have the visibility you need to know when you incur these charges – and strategies for how to avoid them? If you have the flexibility to shift large energy consuming activities, this is a huge opportunity for better energy productivity.
By implementing technologies like behind-the-meter battery storage, you can minimize the amount of energy you draw from the grid during peak demand times and shift energy usage from high-priced to low-priced hours. With a smart energy management approach such as this, your organization’s facility managers can gain visibility into when you incur the bulk of energy charges. With that information, you can develop and implement a strategy to shift production schedules, turn off non-essential equipment, or take a less energy intensive approach until the critical period passes.
Another way to reduce your net energy costs is by earning revenues through curtailing your load at specified times. Demand response programs allow you to reduce your energy usage during times of grid stress in exchange for financial incentives. This can be a great way for you to earn some cash while supporting a more sustainable and flexible electric grid.
Energy solutions to help you control your energy
There are a wide variety of energy solutions to help organizations take control of their energy costs. But cost is only part of the equation. Your organization must also consider the implementation details, like how complicated a solution is, how much upfront capital it requires, and the solution’s carbon emissions reduction potential.
Looking at the comparison charge below, note that there is no single solution that has an entirely “green” row. That is because they all involve trade-offs. Deciding the best energy solution for your organization is a complex exercise that requires bringing to light how these cost drivers interact – and prioritizing your energy management efforts for maximum impact.