A guide to energy procurement: Understanding, strategies and benefits

In today’s market, energy costs can fluctuate wildly, and with the increased awareness around sustainability, energy procurement is more crucial than ever for businesses and organisations aiming to manage costs, reduce environmental impact and ensure security.

Understanding energy procurement services

Energy procurement refers to the process of sourcing and managing the purchase of energy for their company’s use. This process has previously been limited to large multi-site businesses and energy-intensive industries. However, energy procurement has now become a focus for all businesses as they seek to manage costs and environmental impact.

Energy procurement services go beyond simply buying energy at the lowest price; it includes assessing market conditions, evaluating suppliers, considering contract terms, and, in some cases, even hedging against price volatility through structured agreements.

In a nutshell, energy procurement services are about securing energy under the most favourable terms to suit the business’s operational, sustainability and financial goals.

Options in energy procurement

Energy purchasing and procurement isn’t a one-size-fits-all process. Each business’s needs, budget, sustainability goals and risk appetite will vary and, as a result, so will their procurement strategies.

At Amber, we utilise the most reliable strategies:

Fixed-price contracts: This strategy is popular for businesses that are seeking budget certainty and are very risk adverse. In a fixed contract, all the energy and non-energy costs are bundled into a fixed unit rate. Fixed-price contracts lock in an energy rate for a specific term, protecting the business from market volatility. However, if prices drop, the business won’t benefit from lower costs.

Flexible products: These types of products allow the purchase of a percentage of their energy consumption when the markets are more favourable. With this type of product, you have more transparency of the commodity costs and of the non-commodity costs. You also have more flexibility on options around the non-commodity costs, whether to fix them for the contract duration, fix them annually or to pass them through to pay only the market rates. These types of products allow more freedom to alter strategies, however they do offer less budget certainty.

To learn more about non-commodity charges and how they relate to your energy bill, read our full blog here.

Bespoke products: Through the energy crisis of 2022, we saw an influx of new products which were tailored for specific business needs and to manage the risk brought on by the high volatile prices and uncertainty over future markets. There are products that allow you to trade on the day-ahead market.

The benefits of effective energy procurement

Some of the key benefits efficient energy procurement can provide businesses include:

Cost savings: Strategic energy procurement can help businesses secure competitive rates, reduce exposure to volatile markets, and ultimately lower energy expenses.

Risk management: By using a tailored energy procurement strategy, businesses can protect themselves from the unpredictable nature of energy markets. Fixed-price contracts, for example, provide budget stability, while hedging strategies allow companies to manage risk based on their specific tolerance levels.

Sustainability goals: Procuring energy from renewable sources can enhance a company’s sustainability credentials. Many companies today are setting Net Zero goals, and renewable energy can be a key step towards reducing their carbon footprint.

How can Amber help?

As the energy industry continually develops, it’s essential to be clear about the business’s objectives and needs when developing an energy strategy.

We provide expert consultancy to help ensure your business has a procurement strategy which suits your risk appetite. Please get in touch to find out how we can support you.