Market forces and policy changes are creating an increasingly strategic energy challenge that businesses need to address.
To counter price and supply risks, companies need to develop an energy strategy that provides secure and affordable supply.
Put simply, this can be done with a combination of buying strategies, demand management strategies – and standing on your own two feet by cutting your reliance on the central energy grid.
Are you too exposed to volatility?
Companies that rely on grid supply are exposed to price volatility through increased wholesale prices as well as rising transportation costs and carbon taxes. And there is potentially a supply security risk, with National Grid recently warning that Britain is at its greatest risk in seven years from supply outages this winter.
So how do you reduce your grid reliance? There are two key approaches a company can take:
1) Enter into a bilateral Power Purchase Agreement or PPA
PPAs are attractive because they secure supply over the contract period at a known price, thus removing price volatility and allowing your business plan ahead. The contractual arrangements are complex – this is to ensure risks and rewards are appropriately assigned. But once they’re in place, they give long term price certainty for a company for a proportion of its energy needs.
2) Invest in a decentralised energy system
The alternative – and one being pursued by an increasing numbers of companies – is to invest directly in generating assets. The reason? Control. Taking control removes your reliance on the grid, delivers lower known energy costs and on top of that there’s a reputational benefit from investing in renewables.
My advice? Be bold
There’s a growing range of options for companies looking at generating their own energy, not least funding and management options which avoid the need to distract resources from the core business. These options make investment in generation an increasingly feasible and attractive option for businesses.
Both PPAs and getting your own power source are bold steps for businesses to take – all too easily dismissed through fear of the unknown. But failing to develop a strategic approach to energy cost management – and not taking the bold steps now – exposes business to competitive pressures going forward.