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Deregulated energy markets have opened doors for new providers. The healthy competition that follows benefits all parties, including you, the customer. Today, you’re not limited to the one and only energy supplier, you can choose, and this is an undeniable advantage.
However, the amount of work that goes into making a well-informed decision is hard to underestimate. Fixed and variable rates, block and load following energy products, pre and postpaid options, two and five-year contracts; with so many moving pieces, how can you make sure that the plan you sign up for is the best for your organization with its unique needs, risk tolerance, and goals? By following this step-by-step guide, where we cover all the basics.
Before selecting a new energy plan and provider for your organization, you need to have a solid understanding of how you’re using energy. Are you aware of how much electricity and natural gas you consume? Is there any seasonality in consumption? What are your peak months? In Alberta, for example, all energy consumers are assigned a rate class, from small to large commercial service, and depending on your rate class, you’ll be able to get access to different rates and plans.
You can start by looking into annual and monthly usage, but the more granular you can get, the better. This will allow you to narrow down which programs best suit your specific needs, budget, risk tolerance and seasonality. Besides, the results of this energy audit will give you greater insight into potential savings opportunities through different plans or programs available with various providers and allow you to forecast your spending better.
Learn more about understanding your organization’s energy usage in this guide!
Once you zoom in on your energy usage patterns, you can zoom out to connect the dots between your business goals and how energy can support them.
What are your short-term and long-term goals when it comes to managing energy in your organization? Do you want to save money on electricity bills? Are you looking for ways to reduce emissions associated with your operations? Knowing what goals you’re trying to achieve will help narrow down the options available and make sure the chosen solution meets all of them.
A step that is often overlooked is reviewing your current contract. Look at your recent energy bills and contract terms and conditions to analyze what works for your company, what doesn’t, and what you’re looking for in a new energy agreement. Have you noticed a spike in your bills that you can’t keep up with? Are there extra charges for usage outside your current contract’s tolerances? Do you have new business goals to grow or shrink, and does your current program support them? Do you want to make the best decision when your renewal date comes up or simply renew with the incumbent to save time analyzing?
Make sure you have extensive information about your starting point, meaning either the details of your current agreement or the information about your default provider. This process can be overwhelming, so if you’d prefer to have professional help and guidance, feel free to reach out to our energy experts for a free consultation.
Tip: Avoid switching during peak consumption periods, like the summer and winter seasons. The best time to switch is when demand is low.
When looking for a new plan, it’s important to pay attention not only to the rate but also to additional costs that you may incur. Make sure you know what billing charges may apply when signing up for a particular plan, as some may come with hidden fees associated with them. Be aware that depending on where you live, taxes may be applied to electricity bills, so factor this into overall cost calculations when comparing different options available within the market today.
Termination fees can also vary greatly depending on provider and contract length; some contracts require customers to pay early termination fees, while others don’t include them at all.
Be sure to check all stipulations included in potential contracts because there could be unforeseen penalties if certain conditions aren’t met or maintained during the duration of the service agreement.
When selecting an energy provider, be sure to pay attention not only to standard billing cycles but also to special programs, discounts, or incentives offered by certain suppliers, for example, during peak demand times. Depending on your usage patterns, these details can significantly influence how much money you pay over time and the timing of those payments as related to your cash flow.
When it comes to billing cycles, look into whether the plan offers monthly, quarterly, or annual options. Monthly billing is generally the most convenient option for tracking and accounting. However, quarterly and annually may offer better rates depending on the provider. Some providers can also offer budget billing, which uses estimates to establish flat monthly payments settled and adjusted once per year. This can make your cash flow more predictable and stable year-round.
Many providers also have specific terms and conditions regarding payment structures, for example, prepaid and postpaid contracts; some accept credit cards with or without a surcharge, others may have very limited and inconvenient payment options that do not align with your company’s preferences, etc. Make sure you understand all the details clearly before signing up for anything to avoid difficulties and unexpected costs in the future.
Would you prefer knowing how much you’re going to pay for energy every month, or would you rather adapt to changing market conditions and pay accordingly, hoping that the market tracking pricing remains low? Depending on your preferences, budgeting needs, and risk tolerance, one option might make more sense than another.
It’s essential to understand what each type of rate entails. Fixed rates provide certainty: you lock in a price per unit of electricity or gas that remains consistent throughout the term of the contract, regardless of changes in market prices or usage levels. Variable rates change from month to month according to fluctuations in supply and demand dynamics, meaning no long-term guarantees regarding pricing stability.
Many organizations that have had negative experiences with fixed agreements in the past tend to stick to variable, or index, rates, hoping that over long periods of time, the average price will be lower than the rates per unit available on a fixed rate plan. And while both ups and downs are inevitable, and it is possible that over a given period, the variable rate beats an average available fixed rate for a matching period, you will have to weather the highs and lows along the way. This option gives your company 100% exposure to the market, and in bearish markets, this can work out to be cheaper on a per-unit basis, but don’t let that bear get caught sleeping when the bull shows up.
Another option is having a complex hedging strategy in place. It will allow you to mix the best of both worlds, fixed and variable, typically by incorporating certain block hedge products (7×24, 5×16, etc.) But block-hedged products can also vary across providers and offer different rates and terms. Choosing the best energy products to put together a complex block hedging strategy can be complicated, so make sure you have enough time to dive into this topic. If you need a solution fast, consider working with energy consultants.
When making this decision, you should consider both potential costs as well as associated risks before committing either way – short-term savings that usually come with variable rates may come at the cost of longer-term risks that aren’t factored into consideration appropriately. Likewise, committing to higher fixed costs might ultimately deliver lower overall expenses if associated risks are managed correctly across multiple years, for example, if the market goes up.
Short-term and long-term contracts have their pros and cons. With short-term agreements, you get a chance to switch to a new product or supplier more often, meaning that you have room to experiment. Long-term contracts are more conservative, which also means that you can save time you’d otherwise spend comparing options. Remember that most variable-rate plans offer significantly reduced terms lengths compared with standard fixed-rate plans. Usually, a longer contract is better since it tends to offer lower rates, but it’s not an automatic correlation in all market cycles.
Whether to choose a short or long-term contract should depend on multiple external and internal factors. The external ones include market conditions and supplier offers, while the internal ones are related to your needs and budgeting strategy.
Depending on where you live, switching part or all of your organization’s current usage over to renewable sources such as solar or wind can greatly reduce your carbon footprint. These types of resources are not only more sustainable than traditional fossil fuels but could potentially offer substantial savings over time due to lower electricity rates associated with these types of sources.
Furthermore, it could also help you save money through incentives provided by government subsidies and tax credits or rebates. Reach out to your local utility providers, government agencies, or energy consultants who specialize in promoting and implementing green initiatives in your industry or area.
When it comes to energy management, organizations often find themselves needing help and guidance. An energy consultant can provide valuable insight and expertise in helping you choose the best energy program for your organization.
If you decide to embark on this journey on your own, be ready to evaluate market conditions weekly, if not daily, and stay ahead of the trends that can shape future pricing, for example, economic trends or major events and changes in legislation.
In conclusion, choosing the right energy program for your organization can be a daunting task. There are many factors to consider when selecting an energy program, and it’s important to understand how each will affect your organization’s bottom line and long-term goals related to sustainability and cost savings.
To make the best decision, you need to know what types of energy programs are available, what incentives are offered by different providers, whether or not there are any additional fees associated with certain programs, and if federal or local regulations may impact your decision.
Don’t want to go through the whole process alone? Reach out to our energy consultants today!
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