Today, to say that times are changing is an understatement in the energy industry. Prices fluctuate so rapidly that it is easy to understand the confusion of many companies. At times when electricity prices rise, many panic and rush to buy, making a choice at the hottest point of the market. Now prices are falling, and we are ready to play the waiting game, hoping to wait for the moment when the price of electricity will be the lowest. Everything seems logical, but the lowest price level is impossible to predict. Therefore, most of the wait-and-sees will still enter into contracts when prices start to rise again, when they are afraid of another price jump. Again, this is not the best possible solution.
Spontaneous and emotional shopping is a rather risky behavior for companies, considering the fact that, depending on the field of activity, electricity prices can affect approximately 20-30% of all company costs. On the other hand, in production, this effect can reach up to 50% of the price of the final product.
One thing that all emotional buyers have in common is that they do not have an energy strategy that would allow them to avoid the panic buying cycle and buy electricity according to the specifics of the company’s operation or growth plans. The first step to break this endless cycle is to define the electricity price you want – that is, the price at which it is profitable for the company to buy electricity. Otherwise, it turns out that it is not clear at which moment the company receives a favorable offer, and at which moment it overpays. In order to find this out, it is necessary to know at what cost the entrepreneur wants to produce his product. It’s hard to buy what you need if you don’t know what you need. It’s like swimming in the ocean without knowing where you want to end up.
We can look at this situation in analogy with the securities market, where successful investments require a strategic approach, choosing combinations of shares of different companies, as well as looking at the most advantageous moment to buy shares. The electricity market fluctuates as rapidly as the stock market, so it is not wise to buy all the electricity in one day or choose only one exchange or fixed electricity product for the whole amount. When making a last-minute decision, the company is forced to choose the offer available on the given day, regardless of whether it is suitable for the specifics of the company. It’s quite clear that it doesn’t give the best price in the long run.
Given that the electricity market will remain volatile for the foreseeable future, companies need to change their mindset to get the electricity price they need.
It is necessary to switch from the principle, when all the energy needed for the company’s operation is purchased at once, to a flexible energy purchase approach, where production is subordinated in such a way as to use market fluctuations to one’s advantage and to produce when energy is available at the optimal price defined by the company.
In practice, this means combining different types of electricity procurement and energy solutions that help both reduce and increase energy consumption depending on price fluctuations. Such solutions as solar panels, replacement and automation of lighting, introduction of electric car charging, etc. allow to automate and combine processes by coordinating them digitally. In this way, the company can dynamically adjust its consumption, using less electricity when it is expensive and more when it is cheap. Experience shows that comprehensive automation in combination with solar energy and energy efficiency solutions allows companies to reduce electricity costs by as much as 65% in the long term.
Confusion and emotions prevail at the moment when we are thrown out of balance – the usual operating model no longer works, the situation changes rapidly, and there is no clear solution on how to act. The complicated becomes simple when there is a clear plan on how to proceed. Then it turns out that fluctuating prices are also advantages that can be used to your advantage. Accordingly, an approach appropriate to the new market reality forces us to be flexible and also to think strategically about the purchase of energy – in such a way as to strengthen our competitiveness, rather than being completely dependent on market developments.
The author is an energy company Enefit business customer segment manager
