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All About Energy

3 Factors to Consider When Buying Energy

Will McGinnis Jul 25, 2018 12:00:00 PM
Will McGinnis
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new-energy-strategy-plan (1)Energy rates are determined by a number of factors, some more complicated than others. Trying to sort through these concepts alone can leave one feeling frustrated. An energy broker makes the process of choosing an energy provider and product less stressful by using their years of accumulated industry knowledge and experience. Knowing the ins-and-outs of the industry helps the broker to find the product and price that suit a company and its specific needs the best. Three of the most important factors to discuss with your energy broker before making any decision:

1. Load Shape
2. Historical Usage
3. Location
Not only are these three concepts critical in determining the price of energy, but a strong understanding of them will allow you to increase efficiency and lower costs. 

1. Load shape – Load shape is all about how and when energy is used. Energy, like all commodities, follows the laws of supply and demand, which tell us that where demand is highest, price will be too. Some products, like index, directly account for load shape in pricing whereas most fixed products do not. For pricing purposes, most energy suppliers care more about load shape than any other single factor. Because of this, even customers on fixed products that don’t take time-of-use into account should work on establishing a more desirable load shape in order to get the best price on their next contract. Peak usage tends to occur between 6 to 9 a.m. (especially in the winter) and 3 to 6 p.m. (especially in the summer). In Texas, the summer experiences much higher peaks but in New England, winter often is the season where peak demand is achieved. An energy broker can help you understand these nuances regarding region, business type, time of day, and more. A good broker will also look at customer specific usage and offer guidance on how load shape might be changed and the potential benefits.

2. Historical Usage – Historical usage is a way of measuring customer’s size. Typically, this number is expressed in terms of kWh (kilowatt-hour) or MWh (megawatt-hour) used on an annual basis; sometimes it is split into a monthly view. The size of the business is important to energy supplier’s is important for a number of reasons. Many charge less per unit as the customer gets larger, although some providers cater to smaller businesses. Your average customer may assume all providers are essentially the same, but a broker has in-depth knowledge about which energy suppliers match up best with which customers, size is usually the biggest factor in making that determination. It’s also very important to understand how your usage might change in the future throughout the year. Some companies punish usage that diverges too much from the usage stated on the contract. Others have products that are designed to allow for usage fluctuation. Some, like Block & Index, allow you to be very hands on and dictate to the supplier exactly how much energy you want to buy. Taking advantage of these options first require one to understand their usage amount and how it might change, which can be very difficult without the assistance of an energy broker.

3. Location – How far is your business from the transformer? Transformers either step up (increase the voltage) or step down (decrease the voltage) the energy transmitted across power lines. Proximity to high voltage lines and transformers play an important role in determining the cost of energy. Line loss, the dissipation of electricity as heat and electromagnetic energy as it’s transmitted, averages about 5-7% on the Texas grid. Business directly connected to high voltage transmission lines or right next to transformers might experience line loss as low as 2%, where a remotely located business might experience losses as high as 10%. Some electricity providers account for the actual cost of line loss for the specific customers while others just use averages. Your specific situation will determine which will be more beneficial to you, but knowing which provider is which is the kind of industry knowledge that nearly impossible to find without consulting an energy broker.

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Topics: Energy Contract, Energy Broker, Energy Savings