Energy Aggregation Becomes a Business Option

aggregationEnergy aggregator Good Energy says that the concept is growing and will roll out across more states during 2016 and beyond.

Aggregation is an approach to energy procurement in which customers in a given community band together to get better deals than they would individually. This approach to date has mostly been used by residential customers. However, it is growing industrial, commercial and municipal customers, said Good Energy Managing Partner and Director of Sales Charles de Castéja.

de Castéja said about 20 percent of participants in a community aggregation program are likely to be non-residential. It is difficult to draw precise conclusions on a national basis because energy aggregation regulations vary between states. The concept was developed in the early 2000s. It currently exists in Ohio, Massachusetts, California, Illinois, Texas and New Jersey. It is being considered in Delaware, Rhode Island, Connecticut and Pennsylvania. Studies are underway in Utah, Colorado, New Mexico and Minnesota. A pilot project, Sustainable Westchester, is underway in New York, de Castéja said.

In some cases, de Castéja said, a business that does nothing upon the expiration of their contract is automatically enrolled in an aggregation program. They can, however, opt out if they prefer. de Castéja says that his company’s aggregation save businesses an average of about 10 percent in their annual energy bills. In some programs, however, businesses or residents must opt in to participate.

Massachusetts is the state that Good Energy wants to talk about most. Director of New England Sales Philip Carr says that the state was the earliest to put an aggregation program in place – it started in the 1990s with the Cape Light Compact – and initially made good progress. The market was ripe for aggregation because of the high cost and volatility of the major source of energy, which is natural gas. The initial progress, Carr said, was followed by “a bit of a lull” during which fewer communities joined. During the past two years, however, activities have picked up.

Currently, Good Energy represents 35 communities with about 1 million residents across the state. South coast communities include New Bedford and Fall River. There is Melrose in the Boston metro and northern communities such as Westford, Dracut and others, Carr said.

Most large commercial and industrial businesses already have relationships with energy suppliers. Thus, users of aggregation tend to be small and medium size, Carr said. Participation pays off both in overall lower costs and in predictability which, for businesses, can be as important. “They get this excellent buying power partly because large suppliers realize this is a unique buying opportunity and they really sharpen their pencils,” Carr said. “It goes beyond market forces and becomes true competition. You also get intangibles such as all these communities working together towards a goal.”

Energy managers need to be aware of aggregation services. In some states, an energy manager not doing anything will result in the business being included in an aggregation program. In these instances, passivity – whether it is deliberate or the result of not paying attention – can equal participation.

de Castéja says that aggregation is a tool to consider. “I think that energy managers often think they need to take actions,” he said. “In some cases, in some states, they may not have to take action to make the best deal. An energy manager needs to be aware of what their community is providing in aggregation. When they receive the opt-out notice they need to analyze it versus what they are trying to achieve if they are thinking of switching and dealing directly with the utility,” he said.

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3 thoughts on “Energy Aggregation Becomes a Business Option

  1. While aggregation might make sense for residential customers, aggregation for commercial and industrial customers often results in costs associated with poor load factor customers being absorbed unwittingly by high load factor customers. Aggregation is particularly troubling when it spans multiple load zones or even multiple rate classes within the same zone.

  2. I would agree with David. Most large Industrials and large Commercial customers have been far ahead of the curve. They could very easily drag less say customers into a market that they are not knowledgeable of.

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