Energy Procurement | November 9, 2022
The Impact of Rising Energy Costs on Businesses
Whether we like it or not, the cost of energy is currently skyrocketing around the world. In August 2022, Americans’ energy bills were the highest they’ve been in over 40 years. According to the U.S. Bureau of Labor Statistics, we have experienced a 15.8% increase from August 2021. Similarly, natural gas bills surged 33% above August 2021 levels.
So, what’s to blame for the rising cost of energy? Well, the answer is simple. Prices for the two largest power plant fuel sources — natural gas and coal — have exploded. With the world still recovering from the global pandemic and the war in Ukraine, it’s no surprise that we’re feeling pressure on the fuel front. Additionally, after a long and hot summer, many American households were cranking the air conditioning all season long.
Aside from being an American consumer, how does this affect you? Hold onto your hats, friends, because we’re about to spill it all. The impact of rising energy costs on businesses is huge, and we’re revealing everything you need to know.
Immediate Impacts of Rising Energy
Let’s talk about the immediate impact of rising energy costs on businesses. First and foremost, it’s economic. Energy-intensive companies will incur higher energy costs and pass those costs along to their clients in several ways. Of course, the most obvious will be charging more for products and services produced by said companies.
Additionally, energy-intensive products could become unprofitable due to rising prices. To combat such, producers might decrease their production levels, which would create temporary shortages along the supply chain.
How Rising Energy Costs Affect Different Industries and Sectors
Rising energy costs affect various companies in different ways, depending on which sector they’re in. Below is an overview of the impact of rising energy costs on businesses in several industries:
Aviation and Shipping
The aviation and shipping industries are incredibly energy-intensive, meaning they have high oil and gas usage. As a result, their prices will increase, and they might experience delays in delivering products and services.
Food and Beverage
Many food and beverage companies procure products from agricultural companies. So, if farmers have to increase their prices to accommodate rising energy costs, food and beverage companies will have to increase theirs as well.
Travel agencies purchase a lot from energy-intensive sectors (like aviation and road transport). As the cost of kerosene rises, airline carriers will be forced to increase their ticket prices. As a result, we can expect travel agencies to increase their prices and potentially see a decline in business.
How Companies Can Cope with Rising Energy Costs
Wondering how your small to large C&I company can cope with rising energy costs? Here are some suggestions from the pros:
Develop an Energy Procurement Strategy
Energy prices are likely to stay high for the foreseeable future. Therefore, small to large C&I companies must find ways to cope. We suggest implementing an energy procurement strategy that takes surged prices into account. One way of doing this is by procuring oil, gas, or power directly from the source.
When you obtain energy directly from the source, you can secure it as soon as the sales deal is closed. As you can probably guess, this locks in energy prices and ensures they won’t continue to increase. One way of doing this is setting a fixed price with the supplier and making arrangements to have it delivered as needed.
Of course, some suppliers might be reluctant to enter into long-term contracts (this hands the price risk over to them). If this is the case, companies can purchase energy directly and store it until needed. However, the downside to this method is potentially high storage costs and a decrease in working capital.
Minimize Energy Use
Because energy costs will continue to rise, minimizing your corporation’s energy use is a terrific financial move. And of course, your company will not be the only one to benefit. An increase in the use of energy-efficient processes (by consumers and corporations alike), will decrease the amount of energy in circulation. This minimizes energy’s vulnerability to price hikes overall.
So, what does this look like for you, specifically? Air carriers can invest in more energy-efficient airplanes. Additionally, retail companies can install energy-efficient doors and windows in their storefronts, and restaurants could consider adding solar panels to their business space.
If you aren’t sure how to minimize your company’s energy usage, you can run an energy consumption business audit. This allows you to see exactly how much energy is being expended and where it’s coming from. Afterward, you can use the results to make the necessary adjustments to become more energy efficient.
Unfortunately, rising energy costs are a reality that many businesses will have to face. If you’re unsure how to cope, Mantis Innovation can help. We help companies to elevate their facility performance and sustainability outcomes through energy procurement, facility asset management, and energy-efficient solutions.
As more and more businesses journey towards increased sustainability, they need experienced partners to transform today’s operations into tomorrow’s results. That’s why our sustainability experts deliver smart, sustainable solutions to improve facility performance – wherever you are in the process. Contact us
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