With intensive energy use being a big part of the industrial production process, high energy costs are often unavoidable. Therefore the energy purchased by industrial businesses must match identically with the fluctuating demands of the production process. This flexibility is essential if energy managers are to remain agile and make energy a strategic enabler rather than a weighty overhead. There are a number of key considerations that must be factored into the energy purchasing process in order to ensure an industrial strength approach.

Risk profiling

Almost all large industrial businesses will opt for flexible energy purchasing contracts over simpler fixed price products – their fluctuating needs are much more suited to a fluid energy buying strategy. However there are a number of ways that an industrial business can use their contract – largely dependent on their risk profile. Some may choose to ‘cash out’ or simply buy energy in the quantity they need it, at the daily price. This lower maintenance option ensures they only pay for what they use. Others however could choose to have active and aggressive hedging strategies, buying future capacity when prices are particularly keen. As future energy prices remain uncertain, industrial businesses may benefit from rethinking their buying strategy. 

Changing regulations

Due to the UK’s heavy focus on the use of renewable energy, businesses are charged a ‘renewables obligation’ as part of their energy costs. Until recently, the UK government allowed energy intensive industries (EIIs) a rebate of up to 85% of this and their feed-in tariff costs. However this scheme is being replaced. EIIs considered eligible will receive an automatic waiver of renewables costs. However for those not considered exempt, energy analyst Cornwall has estimated that these businesses could see up to a 6% cost increase. It’s vital that industrial businesses monitor and manage energy use and check if they are exempt or not. 

Strategic forecasting 

Ensuring accurate spend against budgets and forecasts is normally high on the agenda for industrial businesses when managing energy. However some may miss a trick by only purchasing for immediate needs rather than buying for the future at times when prices are low. If the risk profile suits, the ability to bulk buy at a low price gives some future certainty of costs, still with the option to trade back to the market at a higher price if desired. 

Stakeholder management 

High energy usage comes with a high price tag, so can easily lead to high internal scrutiny on how energy is being consumed and who is accountable. From a senior management perspective, the energy manager must show how ROI has been delivered with clear visible and accurate details of energy consumption. It’s important that all stakeholders are aware of how much energy is costing the business. 

Being no stranger to lean management and efficiency, those in charge of plant and operations will understand the strategic imperative surrounding energy buying. It’s likely that there’s only ever going to be more scrutiny and spotlight on energy purchasing and its impact on the business.