Navigating Volatile Energy Markets: Getting Energy Procurement Right - The Aluminium Federation

In today’s global economy, volatile energy markets are a concern for most businesses. The Aluminium industry is no exception. Fluctuations in the energy market can have a significant impact on companies’ financials. Here, Ruari Cairns, Director of Risk Management at Open Energy Market,  (pictured) a leading provider of energy procurement services and net zero technologies, discusses what can be done by Aluminium businesses to implement robust energy procurement strategies that will withstand market volatility.

The Aluminium Industry and Energy Usage

Before delving into the energy market as it stands today and what can be done by Aluminium firms to safeguard against its volatility, it is first worth showcasing just how energy-intensive the industry is. The Aluminium sector accounts for 1.1 billion tonnes of CO2 emissions per year, and generates around 2 percent of global emissions.

While lots of good work is happening in the Aluminium industry to implement energy efficiency measures and adopt more sustainable practices, the fact remains that the industry relies on a plentiful supply of energy – and that isn’t going to change anytime soon.

Resultantly, both the volatility of the energy market and the way in which it can be navigated when it comes to procurement must sit high on the list of priorities for Aluminium businesses – with such high levels of energy consumption, even small fluctuations in energy prices can have a significant impact on operating costs.

Building an Effective Energy Procurement Strategy

At its most simple, a good energy procurement strategy will provide organisations with a stable and predictable energy supply at a competitive price.

Here are some general factors to consider when pursuing a good strategy.

  • Understand your energy usage – it’s important to understand your organisation’s energy usage patterns, including when and how much energy is consumed.
  • Determine your risk tolerance – it’s important to determine your organisation’s risk tolerance when entering the energy market.
  • Explore procurement options – there are different procurement options available, such as fixed-price contracts and flexible contracts. Each option has its own advantages and disadvantages, and the choice of procurement option will depend on factors such as market conditions, risk tolerance and budget.
  • Consider renewable energy options – renewable energy sources, such as solar and wind power, can be an effective way for businesses to cut down on their carbon footprint.
  • Factor in regulatory requirements – a strategy must consider any regulatory requirements related to energy procurement and usage. This might include renewable energy mandates, energy efficiency standards and emissions regulations.
  • Choose suppliers – businesses will need to choose suppliers that can provide the energy products and services that their strategy requires. It’s crucial to evaluate suppliers based on their track record, pricing, reliability and customer service.
  • Monitor and adjust the strategy – as explored, energy markets are unpredictable. Businesses must monitor procurement strategies regularly to ensure that they continue to meet their needs.

Outsourcing Energy Procurement

While these guiding principles are important to bear in mind for businesses intent on implementing their own effective energy procurement strategy, the real benefits come when partnering with an external specialist.

Not only can outsourcing energy procurement save businesses time on research, analysis and negotiation, but it also has the potential to deliver significant cost-savings. Energy procurement specialists will leverage their expertise to negotiate better rates and contracts.

To give you a sense of the money that can be saved when involving energy procurement specialists, at Open Energy Market we recently announced that our fund has yet again outperformed market averages on both gas and electricity. Our fund members paid 75.8 percent less than the market average for electricity and 78.5 percent less than the market average for gas. In addition, we saved the UK taxpayer £0.25bn this winter with 80 percent of our customers not having to rely on taxpayer support via the energy price cap.

A final point to make is that external providers of energy procurement can prioritise helping their clients to source energy from renewable sources.

A Final Word

While efforts are being made to improve energy efficiency in the Aluminium industry and aid the transition to cleaner energy sources, the fact remains that the industry remains energy intensive. This reliance on energy means that the volatile energy markets that we are seeing today have the potential to seriously impact the financial performance of Aluminium businesses across the UK. Thus, it is important that organisations implement effective and robust energy procurement strategies. There are many factors to consider – energy usage, risk tolerance, procurement options, renewable energy, regulations, suppliers etc. – but to best navigate this volatility associated with the energy industry, it is always best for businesses to outsource the expertise that is required to keep up with changes in the market and deliver serious cost benefits while also incorporating green energy.

For more information about energy procurement strategies, visit https://www.openenergymarket.com/

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