Summer Surges: Strategies to Mitigate Rising Energy Costs

Posted on July 28, 2022

With peak power season in full swing and a sweltering heat wave affecting North America, energy users are grappling with the difficult reality of dramatically higher energy costs. Energy markets have increased to record levels and continue to rise. The shock is felt everywhere, from higher electricity and gas bills to higher consumer prices for energy-intensive commodities and goods. 

 The data below highlights the need for business leaders and energy managers to quickly identify and implement innovative strategies to reduce the negative impact that rising energy costs have on their operations: 

 

+79% increase in power prices

$5-6/gallon of gasoline

115° heat shatters previous records

Diesel prices reach all-time high

The national average price for wholesale on-peak power in June 2022 vs June 2021

Prices are expected to remain tightly at least through the end of August as inventories fall to their lowest levels since the 1950s

Texas and Oklahoma far exceeded previous temperature records this summer as the entire country faces unprecedented heat

June 2022 printed the highest recorded prices for diesel in the US

 

Despite these stunning figures, there are still ways to proactively manage your current energy portfolio and develop a long-term strategy for coping with climbing energy prices. Here's what you can do.

Incorporate renewable energy to reduce risk and carbon footprint

In today’s market, prices for traditional energy supply are so high that incorporating renewables via a long-term physical or financial Power Purchase Agreement (PPA) can reduce risk exposure, lower unit cost, and reduce carbon footprint simultaneously. Hedging with renewable power is often a long-term strategic play with numerous renewable sources and product types available, navigating all the available opportunities can be complex.

An effective carbon strategy can help you understand your facility, reduce environmental impact, avoid compliance penalties, and improve operations. Being aware of evolving green standards and new local emissions standards like New York’s Local Law 97 and Boston’s Building Emissions Reduction and Disclosure Program (BERDO) can be the first stop to crafting and executing a holistic sustainability plan, from data collection and carbon footprint analysis to reporting, renewables, and efficiency and infrastructure improvements.


Discover how the City of Rialto's microgrid helped the city reach its on-site renewable energy generation and site resiliency goals.


Focus on upcoming procurements and budgeting for the future

As current energy contracts expire in this rising price environment, energy managers face the daunting task of deciding how to structure their future contracts for power and gas to manage pricing risk while also achieving a palatable budget. Thoughtful contracting decisions should also consider alternative procurement mechanisms including partial hedging, dollar cost averaging, call options, and renewable energy PPAs.

With so many ways to structure and hedge various energy supply products, these decisions must weigh your organization’s appetite for budget certainty and risk, both in the short and long term.

  • A confident and accurate energy budget eases financial planning and frees up cash for your organization’s core practices.
  • A dedicated energy advisory partner can help to build budgets from the ground up, forecasting each line item independently drawing data from numerous sources.
  • Budgets and accruals can be created and tracked at the facility, department, or enterprise level.

Through this process you can easily identify invoice errors, resolve issues, and save costs.


Check out this commodity strategy developed for SEPTA to help reduce costs related to energy procurement


Manage your demand

Curtailing energy usage during times of peak demand can substantially reduce energy costs and even provide additional revenue streams. Enroll in demand response programs such as the New England Demand Response Initiative (NERDI) or Pacific Northwest Demand Response Project and negotiate with demand response aggregators to ensure you are fairly compensated for reducing demand during peak times.

In addition to the time-based compensation and other financial incentives of demand response programs, reducing or shifting your energy use during peak hours can lower utility costs in wholesale markets, potentially producing lower retail rates. The U.S. Department of Energy's National Action Plan on Demand Response provides detailed information regarding demand response practices and incentive programs available in every state.


Learn how the New York Power Authority managed their demand through energy efficiency projects


Invest in your future

In the long run, the best way to reduce your exposure to volatile energy markets is by optimizing current consumption through energy efficiency measures and developing behind-the-meter renewable projects to reduce your reliance on utility-derived natural gas and power. Though investing in on-site renewables does not provide immediate relief from price shocks, it is a great way to reduce exposure from future volatility and reduce your organization’s carbon footprint.


See how the Vineland Municipal Electric Utility avoided volatile energy costs through energy efficiency measures


Moving forward with a solution

There are many ways to purchase renewables, ranging from outright ownership, power purchase agreements, renewable energy credits, to carbon offsets. A dedicated energy advisory partner can help to identify the option that offers you the best combination of benefits including budget certainty, sustainability, and savings. This support can be invaluable in guiding you through negotiating a PPA, navigating REC markets, or finding reputable carbon offsets.

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