Originally Published on: SpendEdge | Trends in the Energy Procurement Market – Overview
Whether it's electricity, natural gas, or renewable energy, businesses have to deal with a plethora of challenges when trying to secure their energy supplies. As a result of pandemic-related issues, energy costs and associated risks have risen to all-time highs. More and more businesses are adopting a strategic approach to their energy procurement in order to reap the benefits of hedged risk, guaranteed supply, and tighter budget management, among others. The focus on adopting renewable energy sources has acquired major speed while energy prices are slowly beginning to improve. Fossil fuels are rapidly becoming obsolete, and in order to maintain competitiveness and generate profits, businesses will need to radically rethink their energy procurement strategies.
Changes in the Energy Supply Industry in Recent Years
Initiatives to reduce carbon emissions are at the forefront of the energy transition.
As climate change's effects worsen, governments and businesses alike are swiftly reinforcing the importance of decarbonization on their agenda by establishing lofty but realistic emission reduction targets. While the United States has returned to the Paris Agreement since the election of Joe Biden, the world's largest emitter, China, plans to achieve carbon neutrality by 2060. The European Union (EU) isn't sitting on the sidelines; it, too, has upped its reduction goal to 55% by the end of this decade, allocating roughly 30% of its COVID recovery budget to clean energy projects.
Raising awareness of scope 3 emissions, which make up the bulk of a business's overall emissions and can be traced back to both upstream and downstream activities throughout the value chain (those involved in production and consumption, respectively). The impact of these emissions on climate change is substantial, but organizations have limited influence over them (unlike scope 1 and 2 emissions). Amazon, Google, Apple, and Microsoft are just a few examples of the leading global firms that have already created programs to address this risk; with their supplier base naturally following suit, large-scale positive effects should be seen shortly given the magnitude of their supply chains.
Thinking about sustainability beyond the purchase of renewable energy:
Decisions on who suppliers to work with are constantly adapting as businesses look for more precise ways to gauge the social and environmental benefits of their renewables partnerships. Agreements to acquire green energy must ensure that their suppliers' operations are conducted in an ethical and responsible manner, with a good effect on their employees, the environment, and the communities in which they operate. From afar, it may appear that all RE plants function in the same way; nevertheless, a thorough sustainability study is necessary to identify those that displace more fuel than others or offer clean energy at the expense of local residents.
The majority of re-procurement contracts are awarded to large firms.
While it's true that the number of renewable energy transactions is on the rise, it's also true that only the largest corporations have emerged as the primary donors. Some have pledged substantial reductions in emissions and have followed through on those promises. They are also on track to become carbon neutral by the designated dates. Despite weak contributions from smaller businesses, there is solace in the fact that many large organizations are taking action to ensure sustainability along their supply chain, which should lead to an increase in activities from startups and smaller organizations.
Trends in energy procurement and their effect on commercial energy spending
Recent developments in contract and engagement models have put businesses in a stronger position to assess the effects of energy procurement services on not only their bottom lines, but also their reputations among consumers and the communities in which they operate. Companies that publicly support initiatives to increase diversity, employment opportunities, and equality build goodwill among their clientele, who are more likely to remain loyal to the business and even take pride in its name. Leaving a positive ecological legacy for future generations is important, but this is a huge bonus on top of that.
Energy accounts for a sizeable portion of total costs, and energy procurement companies frequently incur severe financial losses due to market volatility and constant fluctuations in electricity and natural gas prices, in the absence of properly drafted contracts or proper price hedging mechanisms. However, wise energy procurement solutions can provide some respite by helping businesses get attractive arrangements with their suppliers and guarantee a steady supply despite fluctuations in the energy market. By reducing expenses and increasing productivity, businesses can boost their bottom line through the use of such tactics.
Why Go with SpendEdge?
Power Acquistion Spending can be rationalized with the help of these two procurement intelligence systems.
In order for procurement teams to weather turbulent markets, accurate and actionable market intelligence must serve as a bedrock. Our experts have the expertise to help you transform your procurement strategies with highly customized solutions, such as supplier and category intelligence, TCO analysis, and best practice evaluation, thanks to their years of experience meeting the procurement needs of energy customers.
Boost the development of renewable energy sources:
The current situation necessitates that businesses set aggressive energy targets, but in order to do so, they need to provide their procurement departments with useful information. Here's where SpendEdge comes in; the platform will educate you on the most recent developments in the green energy business, including the most popular engagement models, best practices, and industry leaders.
Evaluate the supply chain's sustainability and potential risks accurately.
When suppliers are slow to implement sustainability programs and sound risk management procedures, it can have a devastating effect on the efficiency of the entire supply chain. Including supplier risk and sustainability research, our insights put you in the driver's seat to proactively identify possible bottlenecks in your supply chain and establish corrective action plans.
Using market data and cost savings, SpendEdge assisted a client in meeting their sustainability goals.
To optimize profits from green energy procurement and better understand the regulatory landscape throughout its countries of operation, a market leader wants to better understand the regulatory landscape. It also wanted a thorough cost analysis, one that accounted for the influence of rules on procurement prices. The customer had a hard time seeing how crucial RECs/GoOs and iRECs were to their ability to make informed procurement decisions and accomplish their desired business goals because of the complexity involved in reviewing legislative changes across a large number of countries (52 total).
To get the client started on the path to procurement excellence, our team of specialists collaborated closely with them to analyze each area of interest and suggest a solid methodology for creating a comprehensive energy procurement consultancy solution. Right off the bat, we looked at the worldwide regulatory landscape, singling out countries with promising prospects for energy acquisition. Each country's certification needs (REC/GoO/iREC) were summarized and displayed as well. Next, our experts did a comprehensive analysis of the procurement complexities in each major region/country, which gave the customer a better grasp of the regulatory strictness and price restrictions on renewable energy.
Our market research solution helped the client promptly recognize the weak spots in its regional procurement procedures and its contract models. The client redesigned ineffective methods after gaining a deeper familiarity with the legislation and procurement complexity, and they found the best countries for corporate energy purchase. Benefits in the form of substantial cost savings and robust risk mitigation techniques were thus obtained in a short amount of time.
If energy is the biggest part of your overhead costs, you need a plan to make sure you get it at a good price and with good contract conditions.
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