Energy Optimization Is Key in Today’s Market
With the economy still uncertain as the post-recession recovery continues, there has never been a more-urgent time for commercial property owners to make energy management a priority. According to the Energy Information Administration, energy expenses can total 30% of a commercial building’s bottom line.
Despite rising prices, there are money-saving options when it comes to energy spending.
Fluctuating natural gas, oil and electricity prices can put energy users at a disadvantage. Factoring in weather, production levels, and other market forces, rapidly changing prices can effectively disrupt the budgeting of future energy costs.
In the Northeast, for example, building owners often face winter price hikes when electricity generation and heat compete for limited gas pipeline capacity.
While some property managers see their energy bills fluctuate each month, others choose to eliminate the uncertainty by tapping into the deregulated energy market as a means of stabilizing their regular energy payments.
Many utility customers have already switched to an energy services company (ESCO) to control budgets, manage risk, and use their resources in a cost-effective manner. With costs on the rise, owners and managers of commercial properties can no longer afford to ignore such options.
Traditionally, organizations would save energy by improving efficiency through boiler replacements, lighting retrofits, weatherization, and roof and window replacements.
When energy became deregulated, however, commodities like electricity and natural gas could be competitively purchased. Likewise, when solar and wind were introduced to the market, they too could be purchased as a product in the competitive supply market, or physically installed on location and fed into buildings.
A combination of supply- and demand-side energy management techniques was originally seen in “demand response” programs that provided incremental revenue when customers agreed to reduce consumption at system-critical moments on the grid.
We have now arrived at a new era in energy management known as “energy optimization,” where energy service companies use automated technology to help property managers operate assets more efficiently.
By bringing those two capabilities together, we can boost energy savings and also generate revenues. In this way, “energy optimization” turns energy management into a revenue source while also promoting sustainability.
“Energy optimization” software gives users an instantaneous opportunity to reduce their consumption of previously purchased and contracted-for energy supplies by an almost-imperceptible level. The company then profits by selling its energy curtailment back into the market at a higher price than the amount it had originally paid for those supplies.
While energy optimization is the ideal energy management solution, there are also other available choices and services.
When selecting a competitive electricity supplier, a customer can opt for a fixed-price contract. This enables the energy user to lock in a competitive price for the term of the contract, which could be up to 24 months. This model works for users wishing to be shielded from inherent commodity volatility.
As an alternative, energy users can choose a variable price offer which allows customers comfortable with price fluctuation to benefit from energy market declines, and lock in a fixed price when market conditions are more favorable.
Another option available is a blended price through which the user designs a pricing plan that locks in some guaranteed savings, while also taking on some market risk. The customer can then designate a portion of total consumption to be locked in at a fixed price. The remaining portion of electricity used gets billed at the market rate. Under this plan, the user can increase the block size, or convert total usage to a fixed price at any time.
Also, a process as simple as changing lighting or re-calibrating building controls can benefit energy users. In older buildings, lighting and HVAC systems are not as energy-efficient as they could be. By surveying these systems with the guidance of an energy-savvy ESCO, owners and managers can make educated decisions about which systems to upgrade.
Building owners may also opt for environmentally friendly “Green Power” (wind or other renewable energy delivered over the grid) as part of their energy management initiative. Energy users are often pleasantly surprised at the cost-competitiveness of Green Power. By signing up, businesses are not only helping the environment, they are also helping to increase the production of wind power, which benefits the economy as well. Green Power can be worked into various pricing plans to make it a cost-effective option for building managers.
Commercial property managers may also be able to take advantage of government-sponsored tax incentives for clean energy. This past February, the U.S. Department of Energy announced the availability of $150 million in tax credits for clean energy and efficiency projects across the United States.
Through all of these pricing plans and services, ESCOs continuously work with building owners and managers to help them reap the benefits of the competitive energy marketplace.
The bottom line? Deregulation creates significant opportunities to use electricity and natural gas efficiently, cost-effectively, and in an environmentally friendly way.
For building owners and managers who are aware of the options — and who are willing to implement new ideas and make forward-thinking choices — today’s energy environment can deliver significant, bottom-line benefits.
Richard Rathvon is vice president for retail commodity services for ConEdison Solutions.
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