Energy Procurement Strategy: A Step-by-Step Guide

There's been a lot going on this past two years, including a global pandemic, extreme weather, and supply shortages. Instability and uncertainty have led to corporate energy buyer innovation—not only are those with experience exploring and using a wider range of contract types, but companies of all sizes have become more comfortable with renewable procurement.

FREMONT, CA: Energy costs will be one of your organization's largest expenses. Therefore, acquiring the optimal price and terms for your company's gas and electricity is vital. However, due to current market conditions, fluctuating pricing, and other considerations, energy procurement—and the understanding of its components—is a crucial priority for any enterprise.

Thus, a specified procurement plan is necessary. Effective energy procurement is essential for any organization that relies heavily on energy, as it helps manage risk while alleviating certain operational demands throughout your organization.

Why is an energy procurement plan essential?

It's easy to assume that energy procurement is about finding the lowest price and ensuring that the product fits your organization's needs. Your plan should generate value and meet the company's strategy and risk management needs.

During the planning phase, you should concentrate on collecting and analyzing information on tariffs, contracts, and aspects that can assist with risk management. This data guides the strategy and provides directives for the energy suppliers you choose to cooperate with.

Although planning is primarily concerned with company needs and energy expenditure, it also helps you to:

Buy in the proper manner

Offer suppliers precise pricing instructions

Provide time for you to examine or negotiate proposals.

Allows time to monitor the market

A strategy for energy procurement should analyze pertinent internal corporate information, its budget requirements, any legislative or policy requirements, and information on supply and consumption—more on this later.

A step-by-step guide to energy procurement strategy

Analyze the current circumstance

Before initiating the development of a procurement strategy, you must determine what corresponds with your organization's goals. For instance, what are your future needs? Which aspects of the business require improvement?

You must know the business's risks and market position to attain these objectives. You must examine various aspects, including market volatility and stakeholder management.

Prioritize what is most important

After evaluating the issue, the following step is to document the connection between procurement strategy and business objectives. Although this will vary from industry to industry, collecting information about your company's corporate goals is a good idea before assigning procurement objectives to each.

Create confidence among suppliers

Relationships with suppliers constitute a substantial portion of the energy procurement procedure. How you interact with suppliers significantly impacts operational and cost efficiency; therefore, establishing confidence and credibility with your suppliers is essential.

In addition to giving you a sense of price, reputation, customer service, and turnaround time, vetting vendors beforehand will also offer you an idea of price, reputation, and service to the client.

Establish quantifiable objectives

Businesses must determine whether their objectives are defined and measurable. A consistent system for tracking key indicators and then tying these data to the procurement plan enables you to track progress over a specific period more effectively.

Plan your market strategy

Your market strategy defines the tender procedure, pricing mechanism, and contract type required for specific projects. In this step, you will also analyze the delivery model, the nature of the job, any associated risks, and the projected delivery timeline, in addition to selecting a contract type that provides high-quality, cost-effective results.