Energy Procurement | December 15, 2022

What Makes Up Your Energy Spend

More than just the price you’re paying for the energy you’re using, what makes up your organization’s energy spend is a confluence of three primary factors that interplay with each other.

  • Energy procurement

  • Energy use

  • Managing demand

In this first-in-a-series blog post, we outline these factors and how they impact your spend. Later, we’ll dig deeper into the details of each to uncover risk, understand the economics, and equip you with strategies to ensure your spend is optimized across your building portfolio.

Energy Procurement

Energy procurement has to do with how you are sourcing energy outside of your building. What you pay for the energy you use—your power bill—is probably the first thing that comes to mind. Whether your organization is buying directly from a utility, or supplier, or working with a broker who can help you be agile with your contracts to keep costs in check, there is a measurable price that you pay for your energy.

If your buildings are in a state with deregulated pricing, you have some control over what you pay for energy because you can choose who is providing your energy and for how long. An experienced energy broker typically maintains relationships with many suppliers and can help you develop a procurement strategy and navigate contract details to ensure you’re paying a price that you’re comfortable with for the energy you use, be it natural gas or electricity.

If your buildings are in a state with regulated pricing, you have fewer options as you’re typically locked into using a single provider. There are some things you can do like purchase Renewable Energy Certificates or install on-site renewables but otherwise, you’re using whatever sources of energy that are supplied through the utility-owned grid at whatever cost the utility charges you.

Regarding Renewables

Renewable energy is another major, and growing, aspect of energy procurement. We’ll delve deeper into it in our next piece but, for now, some key concepts to understand are:

Owned Systems

This refers to buying, installing, and maintaining renewable energy production, usually a solar array, on your property for the purposes of on-site power generation.

Leased Systems

You can also engage a third-party solar developer or financial institution to lease the array.

Power Purchase Agreements (PPA)

A PPA is a contract through which you can lease a solar array from a developer for installation on your property from which you can use the power, sell it back to the grid, or some combination of both.

Virtual Power Purchase Agreements (VPPA)

A VPPA is a specific kind of PPA that, rather than installing solar on your own property, you purchase the power from a specific energy source virtually. 

On-site generation of renewable energy is gaining momentum and there are currently many incentives for businesses to implement solar projects. We'll dig deeper into these concepts in our next blog.

Energy Use

Your energy use has to do with how you are using energy once it’s in your building. All your building systems that consume energy drive the amount you need to procure to keep your business operating.

This includes but is not limited to:

  • Mechanical equipment

  • Lighting

  • Computers and other low voltage devices

  • Machinery

The efficiency of the building envelope—roofs and walls—and the equipment you are using play a big part in how much energy each building requires.

Well-designed roofs and walls that insulate from external temperatures or ones that reflect or absorb sunlight, depending on the local climate, can help mitigate the need for extraneous heating and cooling. Well-placed skylights and windows can provide daylighting to limit the need for powered lighting.

In recent years, LED lighting has made older forms of illumination obsolete by requiring only a fraction of the energy to operate. Larger systems too, like your HVAC and other mechanical systems, now have high-efficiency options and create opportunities for businesses to significantly reduce energy use.

At the nexus of these systems are building controls that can be automated to further improve efficiency. Examples of this building automation include hallway lights that only turn on when someone enters an area or heating and cooling settings that are adjusted based on building occupancy or kitchen equipment that turns off after the restaurant closes.

Managing Peak Demand

Managing demand is akin to efficient energy use but targets a specific portion of your power bill. Peak demand is a period of time during which an energy grid is experiencing its highest electrical power demand. Utilities have an additional cost for using energy during this time that creates incentive to curtail use.

So, turning off non-essential lighting and adjusting thermostat levels during peak demand hours are two of the biggest cost-saving measures that your facility can take. This can be accomplished manually by understanding what time frame peak demand charges will be applied.

It can also be automated. Systems and software can be implemented that stagger equipment and machinery run times to flatten your overall usage pattern, resulting in a significant reduction in demand charges without altering any performance of your facility.

Another way to offset demand during peak hours is onsite battery storage. If you’re unable to curtail usage during this time, power stored on site can be used to offset your needs from the grid.

Getting Granular with Your Energy Spend

These are just the broad strokes of what impacts your energy spend and are topics worth discussing in more detail. In the next in the series, we’ll dive into energy procurement with a high level look at of U.S. energy markets along with some basics about the considerations for producing energy on-site.