3 Ways to Manage Your Energy Spend in a Rising Market
A rising market is a sign of economic strength — but for businesses, it can also mean increasing energy prices. Energy prices generally behave similarly to the stock market, based on factors such as weather, the economy, and supply and demand.
When energy supply declines, prices tend to go up. In the summer, for instance, hotter-than expected weather can lead to increased risk for wildfires, which can disrupt energy reliability. On the other side of the spectrum, cold weather events, such as blizzards and winter storms, can damage infrastructure used to generate energy. Both types of events can cause a drop in supply and a rise in prices.
Energy prices can also rise and fall based on other economic factors. For example, while initial business closures due to the COVID-19 pandemic led to declines in energy demand and prices, the gradual reopening of states’ economies caused that demand — and subsequently, prices — to tick back up.
No matter what, low prices can only stay low for so long. Eventually, the market will begin to rise, and unless you have a 100% fixed energy contract, your business has some exposure to higher prices. Use these tips to prepare your company to face the effects of a rising market.
1. Diversify your energy purchasing strategy
In a rising energy market, prices can change quickly, which can cause significant fluctuations in your monthly energy bill. In this scenario, it may seem like the best option is to use a 100% fixed contract to avoid price fluctuations and achieve budget certainty. However, in a study of 73 different energy purchasing strategies over a 13-year time period, a fixed-price contract actually resulted in the highest overall price outcome.
In a rising market, it is actually more beneficial to diversify your energy purchasing strategy, like you would your investment portfolio. A blended strategy — one that incorporates time diversification and dollar-cost averaging — can more effectively equip you to manage risk and achieve better price outcomes. Ultimately, with a blended strategy, you can achieve budget certainty even when prices are rising.
2. Take advantage of artificial intelligence and machine learning to manage energy usage
If and when energy prices rise, you want to be sure your business isn’t wasting energy and unnecessarily driving up your energy bill. Tools that incorporate artificial intelligence and machine learning can help your business understand your energy usage patterns and pinpoint problem areas.
For example, if your business operates multiple facilities, you might determine that one building in particular is responsible for a disproportionate amount of your energy usage. This would allow you to investigate further and determine what measures to implement to optimize energy consumption in that building.
AI and machine learning can also aggregate and check energy bills for sudden spikes and other usage-related issues. In a rising market, identifying and resolving these types of issues quickly can make a significant difference in managing your energy spend.
3. Look into sustainability measures that can help reduce energy usage
In addition to evaluating your energy usage patterns, your business may currently have outdated or inefficient equipment or machinery, such as fluorescent or incandescent lights rather than LED lights. By replacing that equipment with more efficient options before prices get too high, you can reduce your energy usage and keep your energy spend lower.
Businesses often hesitate to make these upgrades because it can require a significant upfront investment. However, programs such as Constellation’s Efficiency Made Easy allow businesses to pay for the equipment over time through their power or gas contract. For no upfront capital, you can immediately take advantage of improved efficiency measures, in terms of both energy usage and spend.
There’s no way to predict the future, but we do know the market is volatile. Is your business equipped to manage your energy spend, no matter how high prices go? For more insight into how to develop the right energy strategy for your business, download our guide, “When Is the Best Time to Evaluate My Energy Contract?”
Constellation offers comprehensive energy purchasing options that are built to fit your needs for efficiency, sustainability, achieving budget certainty and minimizing risk. To learn more, contact us.