Posts

Pros & Cons of a Partial Fixed Product

By Calvin Cornish, CEM

November 25, 2019 – If you’ve seen our recent Risk Management video, you know that a Fixed All-In product isn’t your only purchasing option for your electricity.

The chart below shows you the 5 components that make up your electricity supply charges.

Components of Electric Cost

Anytime you lock less than all these components, you have chosen a Partial Fixed (also called Pass-Through) product. Any component not included in your fixed rate is “passed through” to you at its actual cost each month.

Clients typically pass through capacity and transmission (yellow and light blue above) because they’re the next largest costs behind energy and are not directly related to your monthly usage.

Why would you choose a Pass-Through Product?

The pros and cons of a partial fixed product mostly center around risk and its effect on price.

Pass-Through Product: PROS

  1. Reduced risk. Including capacity and transmission as part of your fixed rate converts those flat demand charges ($/day) into usage-based charges ($/kWh). As a result, you could end up paying higher costs for your demand charges.
  2. Avoid risk premiums. If you fix your cap and trans components, suppliers include a risk premium as part of your rate to protect themselves from underpayment. These risk premiums increase your monthly cost.
  3. Take advantage of improved efficiency. If you undergo an efficiency project that improves your load profile, you could lower your capacity and transmission charges. You won’t see that decrease if you’ve fixed them as part of your rate.

Pass-Through Product: CONS

  1. Uncertainty around PLC tags. A large factor in your demand charges is your facility’s usage during the grid’s peak usage periods. There is always a risk that a couple of bad days can result in higher numbers.
  2. Demand charges could increase. By not including capacity and transmission in your rate, you run the risk of these costs actually increasing if your efficiency declines. The type of facility matters — residential and commercial buildings are less likely to see decreased efficiency than industrial manufacturers.
  3. Billing complexity. Passing through components adds line items to your bill. A single cost per kWh will always be a cleaner billing option.

Who’s a good fit for a pass-through product?

If you identify with any of the qualifiers below, you could benefit from a pass-through product:

  • Clients looking for budget accuracy and have a low risk tolerance
  • Anyone with plans to improve efficiency in the next 1-2 years
  • Clients with annual usage that varies notably and has a higher chance of decreasing than increasing
  • Anyone involved in a buying group
    • You want to limit the socialization of demand charges. Otherwise, you could end up paying for the costs of less-efficient buildings.

What should you expect when passing through components?

  • The costs for any passed-through components will vary throughout the term of your contract.
  • On you electric bill, you’ll see the published tariffed rates for your pass-through pieces.
  • You won’t have any hedging premiums on your passed-through components.

Is a partial fixed product right for you?

The list of qualifiers above is by no means exhaustive. The real answer is unique to you based on your risk level, usage profile, and the nature of your business.

If you’d like to learn more, take our Risk Tolerance Survey or contact us to be paired with an energy advisor.

 

Learn about other electricity products:

About the Author

Calvin is a Certified Energy Manager and has served as a Senior Strategic Energy Advisor at Nania Energy since 2010. He specializes in preparing property management boards to make informed decisions on energy efficiency through proper industry education. His clients include apartment complexes, condominium associations, and senior living facilities. In his free time, Calvin enjoys music and coaching youth sports.

Calvin can be reached at (630) 225-4554 or ccornish@naniaenergy.com.

 

Follow us on LinkedIn!

What is a Fixed All-In Product?

Video Transcript

Hi! I’m Mike, and I’m a Senior Energy Advisor here at Nania Energy. Whether you’re new to energy buying or you’ve been buying for quite a while, you’ve probably heard of a “Fully Fixed” or “Fixed All-In” product.

In today’s video, we’re going to do a deep dive into what a fixed product is, the pros and cons of choosing a fixed product, and why it’s such a common choice among energy buyers.

What is a Fixed All-In Product?

Your energy supply charges are made up of five pieces of the pie shown here.

  • Energy by far is the biggest. These charges are at least 50% of the pie. Energy Components Chart
  • Next is Capacity. Capacity relates directly to when you use energy and how you use energy during peak times over the course of a year.
  • Next is Transmission. Transmission are the charges of the energy going across the wires from the grid to the place where the power is being used.
  • Up next is Losses. Losses is a small portion of your bill, but that’s related to the loss of energy over the wires that the utility gets to recoup charges for.
  • Lastly is Ancillaries. Ancillaries make up a small portion, just like losses. Those are miscellaneous charges — anywhere between 30 and 50 different charges — that are put into a catch-all bucket.

So, with a Fully-Fixed product, we’re locking all 5 pieces* of the pie into one rate.

*Note: Depending on the market, all or some of these components may apply. For example, in Texas capacity/reliability costs are included in the energy component rather than separately charged for.

Pros & Cons of a Fixed All-In Product

Now that you understand the components of the energy pieces that go into the pie, we’re going to talk about the pros and the cons of a Fully-Fixed Product.

Pros

  1. You have the same rate regardless of usage. Your rate won’t change based on seasonality or any major variations in your monthly usage.
  2. It makes budgeting easy and predictable. You estimate your annual usage, you times it by the rate, and you get your budget for the year. There’s no worrying about variable month-to-month charges when estimating what your budget might be.
  3. You can take advantage of the market. As we’ve seen historic lows over these last couple of years, locking in a longer term — say, 24, 36, 48, or even longer — can yield tremendous savings and protection over the long term.

Cons

  1. You have little to no flexibility. Say your facility gets more efficient and your capacity numbers improve. You’re locked in at an artificially higher rate than you would be if you were able to take advantage of those efficiency improvements in the facility.
  2. There are built-in premiums. While you have budget certainty by locking all the pieces of the energy pie, there are premiums built into each of those pieces that suppliers use to hedge their risks. So while you have premiums attached to each of those, you’re paying a little bit of a higher rate than you would with another product.
  3. Is now the right time to lock? While this could be viewed as a pro — similar to market timing — I get asked a lot “What if I lock and then the market goes down?” I usually ask in response “Would it bother you more if the price went down another 1-2 percent or if it went up 5-10 percent?” It’s about market timing and what you’re most comfortable with at that time.

Why is Fixed All-In a popular product choice?

So why is Fixed All-In such a common choice for new energy buyers?

  • It’s easy to understand. You have one fixed rate on your bill and you’re good to go.
  • There’s no guesswork. When it comes to your budget, you have the ultimate budget certainty.
  • You have an apples-to-apples comparison when you’re shopping with other suppliers.

Should you choose a Fixed All-In product?

Is a Fixed All-In product the best choice for you? Or is there another product that might fit better with your strategy and your facility?

Contact an advisor and we can have a conversation about your electricity purchasing options.

Thank you for watching!

Learn About Other Electricity Product Options:

Index Product

Pass-Through Product

Ask An Advisor: What Is Your Risk Tolerance?

 

Video Transcription

Hi! I’m Mike, and I’m a Senior Energy Advisor here at Nania Energy Advisors. One question we get asked all the time is: “How do I go about choosing the right energy product?”

In today’s video, we’re going to discuss one of the first factors to consider when choosing an energy product. And that is: Risk Tolerance.

4 Levels of Risk

When it comes to choosing an energy product, it’s not “one size fits all.” Fixed all-in isn’t always the best choice for everyone.

Each product type comes with its own level of risk. On our website, you can take a survey which will determine your organization’s energy risk tolerance. Based on those results, you’ll be classified into one of four risk tolerance levels:

  • Low
  • Mild
  • Moderate, or
  • High.

Low

So let’s talk about each level. The first is Low. If your organization has a low risk tolerance, we recommend a fixed all-in product. And here’s why:

  1. You probably have to adhere to a pretty strict budget. You want to have a pretty good idea of what your monthly energy spend is.
  2.  Having the same fixed rate makes budgeting and accounting easy from month to month, with little or no involvement from you.
  3. You can set it and go. You choose a rate, and you can rest easy knowing that there won’t be a big change in your rate despite a change in usage.

So, if you have a low risk tolerance level, look for a fixed all-in product.

Mild

The next level is Mild. For customers with a mild risk tolerance level, we recommend a managed product.

If you have a mild tolerance for risk:

  1. You can afford to go 10% over budget without major consequences.
  2. If you enroll in a managed product through a supplier, they’ll lock different portions of your usage every month until 100% of that volume is locked. They use market opportunities and logic in order to determine how much to lock and when.
  3. It’s another set it and go option. You don’t need to be involved in the process.

So, if you have a mild tolerance level for risk, consider a managed product.

Moderate

The third level is Moderate. If you have a moderate risk tolerance level, then a layered product might be a good fit for you.

Moderate risk tolerance means:

  1. You’re not a budget-driven organization.
  2. A layered product is different from a managed product by involvement level. With a managed product, the supplier makes all the purchasing decisions for you. With a layered product, you need to be actively involved in the buying process so you can decide when to lock.
  3. And, you need to actively monitor the market to decide when the best opportunities are.

So, if you have a moderate risk tolerance and the time to devote to the energy buying process, look into a layered energy product.

High

Our last risk tolerance level is High. An index product is a good option for you if you have a high risk tolerance level.

You most likely:

  1. Have little to no budget
  2. And you’re comfortable with market fluctuations. You can survive the extreme upticks of the market.
  3. Although an index product does not require you to lock, you should remain alert and be ready to act should an opportunity present itself in the market.

So, if you have a high risk tolerance, an index product might be a good fit for you.

Other Factors to Consider

Risk tolerance isn’t the only factor you need to consider when choosing an energy product. Other factors to consider are:

  • How much is your annual spend on energy?
  • Do you have any energy efficiency projects planned?
  • And how much time do you want to devote to monitoring the market?

Use this video and our survey as a guide, but please consult with an advisor or broker for a more detail conversation on choosing an energy product. Keep an eye out for a future video when we dive deeper into the 4 types of energy products.

To stay up to date on the latest energy trends, subscribe to our newsletter.

Follow us on LinkedIn!

Pros & Cons of an Index Product

By Michael DeCaluwe

Occasionally I will get asked about what is a better energy solution — fixing energy or selecting an index product.

Answering that question involves both understanding what an index product is and knowing your specific energy needs and risk tolerance.

What is an index product?

On an index product, your energy rate fluctuates with the market and varies month to month. Your monthly electric rate is based on an hourly rate published your regional electric grid operator.

The utility’s meter takes hourly reads of the amount of power consumed,  and the hourly quantities are charged at the grid operator’s hourly rate. This is your indexed power rate.

Index power rates are typically low at night and during the spring and fall. Rates are higher during “peak” usage hours (8AM-5PM) and during summer and winter when energy demand is at its highest (for heating and cooling needs). Your electric invoice is the total of all these hourly costs for the month.

Are you a good fit for an index product?

An index product is a good choice if you can tolerate volatility or if energy makes up a small portion of your operating costs. Over time, index energy costs have historically been lower than fixed costs because there are no supplier risk premiums built in.

You could also benefit from an index product if you can shift your load to off-peak times. You could take advantage of the lower off-peak hourly rates.

Lastly, if you have a pending energy efficiency project or load management upgrade, consider choosing an index product until the project is completed. Then, you can lock the lower rate that could result from the project.

What’s the difference between being on an index product with a supplier and being with the utility?

If you’re not under contract with a third-party supplier, then you are receiving your electricity directly from the utility. Some utilities offer an hourly index supply rate.

However, there are several differences between the utility’s index product and a supplier’s:

  • A supplier’s index rate (Day-Ahead) can be less volatile than the utility’s (Real-Time) based on the types of indices they use. In some hours, this difference can be as high as 20%.
  • The utility could be socializing non-energy costs, which would increase your index rate.
  • The utility must accept all customers into its programs, while a supplier has credit thresholds.
    • In some markets, customers on utility supply may end up paying for receivables from uncollected supply costs.
  • If a company ever wanted to fix a portion of their future load, the process would be easier if they were already on an index product with a supplier.

If none of these issues are a concern, then the utility could be a good option for you.

Is there more or less risk with an index product?

Although an index product for power has historically been less expensive than a fixed product, it is not risk-free.

For example, during the polar vortex in January and February of 2014, utility index rates were as high as 4-5 times the average price of energy for these months.

Can you take the risk of having your energy costs be 30-40% over budget? Most energy buyers say they can’t take that risk, which is why they typically select a fixed product.

Also, an index product doesn’t give you the ability to budget for energy expenses. For budget-conscious organizations, an index product is not a good choice.

Index at your own risk.

Index energy solutions can be a good fit for some energy consumers. However, you need to know both the benefits and the risks that come with them. The decision to select an index product should be part of a long-term strategy rather than a short-term gamble to save on energy costs.

Please comment below with your questions and thoughts, and feel free to contact me directly if you’d like to hear more.

 

About the Author

Michael is the Senior VP of Commercial & Industrial Sales at Nania Energy Advisors, where he as worked since 2007.       He believes that listening to and understanding clients’ energy needs is vital to becoming a thought leader in the industry and forming a mutually beneficial business relationship. In his spare time, Michael enjoys being a dad, staying active, and playing basketball.

Michael can be reached via email at mdecaluwe@naniaenergy.com or via phone at (630) 225-4552. Click here to follow him on LinkedIn.

Follow us on LinkedIn to stay in the know on all things energy.

New Maryland Renewables Law

By Mike Eckenroth

On May 22, 2019, Maryland Governor Hogan allowed Senate Bill 516 — Clean Energy Jobs Act to become law. This new law increases Tier 1 Renewable Portfolio Standards (RPS) compliance to 50% by 2030.

In other words: it mandates that 50% of Maryland’s energy comes from renewable sources by 2030, which is an increase from the previous goal of 25% by 2020.

How does this impact you?

For all electricity consumers in Maryland, this translates to an increase in costs to fund the renewable goal. The chart and graph below show the incrementally increasing RPS requirements and the estimated impact on electricity rates by year. By 2028, a facility who uses 2,000 MWh will be paying over $10,000 more per year in electricity costs.

Maryland RPS Increases

Maryland Renewable Energy Requirement

 

This cost increase IS avoidable!

You are eligible to lock the existing RPS rate and avoid this cost increase.  Those who sign an electricity supply agreement before October 2019 with a participating supplier will be “grandfathered” under the current and lower RPS costs for the duration of the agreement.

Take action today.

It’s not often that you have the chance to completely avoid a new regulatory fee in the energy industry. Please reach out to me to take advantage of this opportunity and learn how it will benefit your business.

About the Author

Mike is a Senior Strategic Energy Advisor based out of Baltimore, Maryland, with a strong engineering and purchasing background. His specialties include energy efficiency and strategic commodity procurement. Growing up in the shadow of Three Mile Island nuclear power plant, Mike has an intimate stake in a grid with safe, reliable, and cost-effective energy generation — which he leverages into an energy strategy that provides security for his clients.

You can reach Mike via email at meckenroth@naniaenergy.com or phone at 443-833-8224.

The Basics of Buying Electricity

By Becky Thompson

As an energy decision maker, you likely get multiple calls a day from brokers and suppliers promising big savings on your energy bills. But before you jump into an energy supply contract, you should have a firm understanding of what you’re signing up for and your options for buying electricity.

Let’s take a step back to talk about how electricity is delivered to your facility. Then we’ll discuss which electric components you can control. Finally, we’ll talk about how factors such as risk tolerance and budget stability can help you determine which product is best for your business model.

The Path from Generation to Delivery

How generated electricity gets delivered to your facility

Supply

“Supply” is the electric energy you use to charge your phone and turn on your lights. A generator uses raw materials (such as coal) to produce the electrical current that is delivered to your facility.

Transmission

“Transmission” costs include:

  • Capacity
  • Transmission
  • Ancillaries, and
  • Losses.

These non-supply components of your bill move the electric energy from the generator to your facility via power lines. These costs are typically fixed rates regulated by the Federal Energy Regulatory Commission (FERC) and your local utility.

Delivery

“Delivery” charges, which include taxes and other distribution charges, are state regulated and passed through from your local utility.

Which Electric Components Can You Manage?

Components of Electric Cost

Energy

Electrical energy (supply) makes up about 50% of your fixable costs. In a deregulated energy market, this is where you have the most control and can have the greatest impact with the proper strategy.

Capacity and Transmission

Capacity and transmission are known as “demand charges.”

  • Capacity is the cost associated with reserving generation space on the grid.
  • Transmission is the cost of transporting the electrical energy from the generation point to the utility.

These charges are determined based on the peak load contribution (PLC) of each of your utility account numbers. Demand charges total almost 40% of your energy cost, so knowing how you can influence your PLCs can help reduce your costs.

Ancillaries and Losses

Ancillaries and losses make up the remaining 10% of your electricity charges.

  • Ancillaries are the administrative costs of supporting transmission services.
  • Losses are the costs for energy lost during transmission.

You can lower your costs for capacity, transmission, ancillaries, and losses with a proper demand-side management strategy.

Although FERC regulates these four components, the rates for these pieces vary based on the supplier you choose and how they allocate hedging risks. Fixing any or all of them as part of your supply rate affects your budget certainty.

A Note on Delivery Charges

Delivery (utility) charges are the same regardless of your energy supplier and cannot be fixed.

Which Components Should You Lock?

If you’re looking for budget certainty, a fixed “all-in” product that locks both supply and non-supply components is the way to go. A pass-through product is better if you’re working on an efficiency project or want to actively reduce your demand charges. Components not locked are passed through at monthly market rates.

Work with an Energy Advisor.

Knowing which components you can influence can help you choose the product that best matches your needs. A broker can bring you multiple prices, but it’s all in vain if it’s for the wrong product and strategy.

An energy advisor takes a holistic approach to your energy — guiding you through the energy purchasing process and giving you peace of mind that you have a strategy that’s right for your facility. Give me a call to discuss if your current energy product is right for you.

 

About the Author

Becky is a Senior Strategic Energy Advisor specializing in the public sector,  including schools and municipalities. She has been in the energy industry for over five years, working from the ground up as an account manager and then as an electric pricing team lead. Her background knowledge of the inner workings of an energy company helps identify actionable strategies for making her clients’ energy both easy and cost-effective. In her free time, Becky enjoys any activity that requires being outside and making her son belly laugh.

Becky can be reached via email at bthompson@naniaenergy.com or phone at (630) 225-4561.

The Secret to Timing Your Energy Purchase

By Sarah Rousseau

When it comes to buying energy, decision makers usually go by two rules of thumb:

  • Wait to buy until rates are at their absolute lowest, and
  • Only buy in the “off-months” (winter for power, summer for gas).

These strategies may have worked in the past, but they aren’t conducive for today’s evolved energy market.

Here’s why:

  • Current energy rates are near historic lows, and we seem to have hit a price floor. Although it’s possible for rates to dip back down, chasing that mentality can leave you unhedged and vulnerable to an upward trending market.
  • The monthly time windows no longer exist, especially as consumers switch to electric heat and natural gas continues to be used to generate electricity. In the graphs below, the lowest electric rates occurred between June and September, and the lowest gas rates were seen in January.

electric timing your energy purchase

gas timing your energy purchase

There’s no longer a “perfect” time to buy energy — so how do you know when to buy?

The secret: Always Be in a Buying Mindset.

Here’s how:

1) Know your company’s risk tolerance.

Waiting for the lowest possible rate could cause you to miss out on current savings and leave you exposed to the upside of the market. If the market turns, you’ll be forced to pay a higher rate and face buyer’s remorse or management scrutiny.

To avoid this, set price triggers for rates above and below the current market price that match your risk tolerance, then execute when one is reached. In today’s backwardated market, the trigger price could be for a 36- or 48-month term, offering your company long-term protection.

2) Understand your company’s purchasing process.

Knowing how long it takes you to get a purchasing decision approved helps you determine when to start looking at rates.

  • Can you execute a contract same day?
  • Does your board takes months to make a purchasing decision?

Being able to answer these questions allows you to facilitate your internal processes and start the buying process sooner rather than later.

3) Be proactive, not reactive.

Exploring rates less than 3 months before your contract expires doesn’t give you enough time to evaluate your energy purchasing strategy — especially if you have a long internal purchasing process.

Be aware of when your contract expires and take the early call from your advisor, even if your contract isn’t up for 12 to 24 months. They can update you on market trends and help you develop a plan that fits your needs.

Don’t Wait for the “Best” Time to Buy.

Rates are near historic lows, and seasonality  is gone. Take advantage of current opportunities in the market to protect your organization before the market turns. Call your energy advisor for a market update and discuss your buying strategy.

 

About the Author

Sarah has been in the energy industry for over 12 years. Her background is in customer care, account management, pricing, and energy solutions.

As the Director at Nania Energy Advisors, she oversees all internal core functions of the business, including marketing and client relations. Her specialty is her experience in energy pricing and understanding the evolving energy markets. She most enjoys being an advocate for clients and helping make things easier for them.

Sarah holds a Bachelors in Psychology from Illinois State University. In her spare time, she enjoys spending time with her daughter and family, practicing yoga, traveling, and watching college basketball.

Sarah can be reached at (630) 225-4553 or via email at srousseau@naniaenergy.com.

Doing the Work For You with Municipal Electric Aggregation

By Becky Thompson

June 11, 2018 – Energy aggregation can mean big savings for Illinois residents.

Residential electricity aggregation first emerged in Illinois in 2012-2013 when over 750 communities passed referendums to allow cities to buy electricity for residents. But several years later, deflated utility prices led many communities to return to utility supply.

Fast forward to 2018. Aggregation is once again a viable option with ComEd’s new blended Price To Compare (PTC) climbing from 7.2 cents/kWh to 7.7 cents/kWh (an 8.5% jump). Beginning June 2018, municipal aggregation programs are estimated to save residents 5-10% on their electric costs, averaging $75 annually per household.

Electric aggregation programs will once again provide measured savings to Illinois taxpayers. While you may have been part of a buying group or gone to market with a broker in the past, you can take the fullest advantage of this opportunity by partnering with a Strategic Energy Advisor.

A Strategic Energy Advisor will save you time & money.

When it comes to aggregation, think of Strategic Energy Advisors like an educated proxy. We will vet multiple options with credible supply partners for you. We’ll determine the best opportunity for savings for you. When it’s all said and done, we present those options to you in an easy-to-understand format such as this formal Solutions Summary.

Advisors are your individual point of contact.

Aggregation becomes even simpler when you only have one point of contact in us collecting and summarizing all you need to know. We attend the board meetings and go to market on your behalf. We drive the process from start to finish and are ready to answer your questions at any point.

Advisors demonstrate measurable results.

What really sets Strategic Energy Advisors apart from other energy brokers is that our responsibility to you continues after the transaction is complete. We report back to you with regular market updates and personalized reporting that show just how much you saved.

The best part about working with a Strategic Energy Advisor through your aggregation process? If your voters have already passed an aggregation referendum, you don’t need to pass it again (provided it was never rescinded). We’re ready to review your case and give you options right away.

Contact your Strategic Energy Advisor to discuss aggregation in Illinois.

Like all energy buying, electric aggregation programs require thoughtful planning and a partnership with an advisor who has your community’s best interests at heart. Nania Energy Advisors will walk you through the process step-by-step and do the heavy lifting for you. We’re all about making energy easy, and municipal aggregation programs are no exception. Give me a call and let’s get started.

 

About The Author

Becky is a Strategic Energy Advisor specializing in the public sector, including schools and municipalities. She has been in the energy industry for over five years, working from the ground up as an account manager and then as an electric pricing team lead. Her background knowledge of the inner workings of an energy company helps identify actionable strategies for making her clients’ energy strategies both easy and cost effective. In her free time, Becky enjoys any activity that requires being outside and making her son belly laugh.

Becky can be reached via email at bthompson@naniaenergy.com or via phone at 630-225-4561.

Your Easy Guide to Selecting the Right Commercial Energy Product

By Sarah Rousseau

April 23, 2018 – So many options. So many details. So many “what-ifs…”. What does it all mean?

There is no disputing that energy procurement is extremely complex. The process takes a lot of time (something that, let’s face it, you don’t always have in great supply). It requires evaluating several factors between your business needs and the energy market. One of the most important to consider is product selection.

My clients tell me all the time that when it comes to picking the right product, they simply don’t understand their options. They have a solid grasp of their own business challenges, but it’s difficult to determine what product is right for their business with those challenges in mind.

Strategic Energy Advisors empower clients to make these decisions by bringing all that complexity down to an easy-to-understand level. Whether it be electric or gas, product selection comes down to understanding your needs, knowing your risks, being informed and taking advantage of your opportunities – not only when buying, but after the transaction is over.

Understanding your Energy Needs.

Allowing your Strategic Energy Advisor to perform a needs analysis will uncover your must-haves and help you define your risk tolerance (what you can or cannot afford to lose). Answering a few simple questions in the beginning phase of energy purchasing can really make a difference and will help position you to select the perfect energy product.

Knowing your Risk Tolerance.

Energy markets will experience volatility, which is normal and healthy. My job is to help you navigate those periods of uncertainty with the security of the perfect product. After performing a needs analysis, I use the risk tolerance spectrum below to help clients identify their organization’s place on the spectrum and their complementary product options.

 

Commercial energy products risk tolerance spectrum.

Being Informed of your Energy Product Options.

Understanding how energy products align with your organization’s risk tolerance is essential before making a decision. Envision your organization in the description of each product and see if the benefits cover your needs.

Fully-Fixed Energy Products.

Fully-fixed solutions are designed for customers that have little to no tolerance for market risk. These low maintenance options are a good fit for those who need to know their costs upfront and like the peace of mind that those costs will not change during the term of their agreement. That certainty allows businesses to make other long-term decisions without worrying about unexpected increases in energy costs. It’s a straightforward option with no surprises.

Benefits of Fully-Fixed Energy Products

  • Budget certainty
  • Peace of mind
  • Easy
  • Protection from market volatility = high

Managed Energy Products.

Managed solutions are designed for clients with a slightly more moderate tolerance for market risk. With the help of a Strategic Energy Advisor, a client will develop a plan for making fixed purchases throughout the term of an agreement that is in line with their goals. Outlining timing, triggers, and percentage locks are some of the ways to remove the guesswork and make a managed solution successful without regular maintenance.

Benefits of Managed Energy Products

  • Flexibility to take advantage of market opportunities
  • Clearly defined purchasing strategy
  • Protection from market volatility = moderate
  • Balanced buying approach

Layered Energy Products.

Layered solutions are designed for clients with a moderate risk tolerance. With these solutions a portion of the clients’ energy load is on an indexed or variable rate. The client and their advisor make decisions to layer-in fixed volume purchases at opportune times throughout the term of the agreement. The decision to lock in a fixed layer may help take advantage of historic low market pricing, or it may be to mitigate the risk of an upward trending market. No matter the reason, this solution provides customizable flexibility.

Benefits of Layered Energy Products

  • Flexibility to take advantage of market opportunities
  • Power to make regular purchasing decisions
  • Protection from market volatility = moderate
  • Balanced buying approach

Indexed/Variable Energy Products.

Index solutions are designed for clients that have a high tolerance for market risk. They are particularly valuable for clients who work closely with Strategic Energy Advisors and who are comfortable with the dynamic nature of the market. With their entire load floating on a variable rate, they can take full advantage of market lows and have the flexibility to lock in fixed purchases at any time.

Benefits of Indexed/Variable Energy Products

  • Avoid paying risk premiums
  • Take advantage of low market prices
  • Flexibility to lock in fixed purchases
  • Protection from market volatility = low

Taking Advantage of your Opportunities.

The product selection process is full of opportunity. Products with greater risk give you greater flexibility to take advantage of falling market prices. In contrast, products with lesser inherent risk will also possess less flexibility but provide you peace of mind that comes with price certainty. It comes down to finding which product is right for your organization.

Now that you have a better understanding of energy products, you should schedule an appointment with your energy advisor to discuss your opportunities. Strategic energy advisors add a personal touch to energy purchasing and will help guide you through each step of the complex process.


About The Author

Sarah has been in the energy industry for over 11 years. Her background is in customer care, account management, pricing and energy solutions.

As the Director at Nania Energy Advisors, she oversees all internal core functions of the business including marketing and client relations. Her forte is understanding how energy pricing and events affect the course of the market. She most enjoys being an advocate for clients and helping make things easier for them.

Sarah holds a Bachelors in Psychology from Illinois State University. In her spare time, she enjoys spending time with her daughter & family, yoga, traveling & watching college basketball.

Sarah can be reached via email at srousseau@naniaenergy.com or via phone at 630-225-4553.

The Moving Target of Capacity: What Does It Mean for Your Budget?

Capacity has been a topic of conversation in the energy community for a while now but what exactly is capacity as it relates to your electricity, and how does it affect your business?

Imagine you have a garden hose, and when you turn on the water full blast, the total amount of water that can flow through the hose at one time is limited by the diameter of the hose. The only way to get more water from Point A to Point B is to use a wider hose or add more hoses.

Capacity works the same way. The amount of electricity that can flow through the transmission lines at any given time is limited. To ensure reliability of the power grid, power generators and transmission companies by law have to have the infrastructure in place to meet the needs of the grid when usage is at its maximum for all end users.

To make this possible, a capacity charge is passed through to consumers as part of their total energy cost.

While the cost of capacity has always varied based on metrics of supply and demand, since the Polar Vortex of 2014 and the continued retirement of coal-fired generation, capacity costs have grown substantially over the past three years. Capacity now makes up over 25% of your total supply costs, where it was previously only about 7-10%.

To combat these higher capacity costs, you can do two things:

  • Enroll in a “PLC Management” program that provides alerts on peak days of the summer when your capacity costs will be set for the following year.
  • Take energy efficiency measures such as LED lighting retrofits or HVAC upgrades that will reduce your energy usage and demand-based capacity costs.

Higher capacity costs likely are here to stay for the next few years. By acting now, you can help reduce this now significant component of your energy cost.