The Importance of Layering Energy Procurement

A layered energy strategy lets businesses lock in a fixed rate for part of their energy demand and helps in the energy procurement process. 

FREMONT, CA: Business energy management can be challenging with so many energy-buying alternatives. Energy costs fluctuate, so a reasonable rate now may not be there tomorrow—or even in 15 minutes. Locking in energy rates can cost thousands of dollars now and in the future. Large energy consumers have various alternatives, including index pricing or locking in the best-fixed cost. Smart commercial and industrial organizations use multilayer energy strategies. "Hedge" or "layer" is the fixed amount, and the rest floats at the market rate. Customers can lock in additionally settled hedges of various sizes and prices over days, weeks, months, or years to enjoy a blended price that sometimes becomes fixed.

Hedging allows consumers to manage energy procurement and risk down to the kilowatt-hour. Businesses should not put all their eggs in one basket—fixed or indexed. Enjoy favorable market prices while developing a fixed hedge to safeguard their budget if prices rise. Layers reduce market dependence. Understanding the energy market and engaging with an experienced hedge supplier to hedge their energy supply is essential. Retail energy suppliers like NRG offer customers a team of professionals who study historical data and market situations, establish a procurement plan based on business goals, and assist customers in executing each hedging over time. A data-driven managed product solution will help locate the optimal fit, as expertise and customization may be preferable for many firms because many factors affect energy costs.

Companies or businesses don't have to be energy experts with a managed product. They can discuss client issues and create a solution. Energy strategists are available for regular calls to help select when to buy. Energy pricing opportunities require prompt action; any business can lose money by waiting to lock in a rate. For instance, two national restaurant chains with layered purchasing practices have very different results to see how a proactive hedging plan might preserve the business. Both restaurants use tiered procurement, as only the restaurant hedged gets nearly 100 percent of its energy load within budget. 

Energy strategists find that restaurants want year-over-year savings in their first meeting. They need certainty and don’t want to be subject to excessive rate spikes. Most restaurants operate year-round hours, so they couldn't switch off appliances and power if energy prices were high. They'd use energy whatever, so market-based pricing would endanger their energy budget. As market prices drop, they gradually lock in load layers through market monitoring and strategy meetings. Layered hedges mitigate market rate spikes caused by harsh weather.