Businesses with large energy requirements sometimes require a full-time energy manager. The energy manager’s job is to constantly identify buying opportunities for their electricity and gas contracts. The traditional strategy of going about getting the best price for energy is a paper RFP one, appears to be easy to implement, and is flawed. There are a lot of line items to consider when purchasing electricity. Terms with exotic names like “volatility”, “load factor”, “natural gas futures”, “pass-thru or no-passthru”, etc make up components of an electric contract.
Now combine these factors with hidden buying opportunities, and the work of an energy manager is cut out for him or her. Hidden buying opportunities take the form of energy suppliers who are left holding a position after one of their contracts defaults for example. The Energy Procurement industry consists of a complicated, but not insurmountable tangle of factors. One has to weave through these factors in order to find the best energy price on the market at the right time.
LC Associates helps our Clients cut through all of the energy procurement chaos. We do this by utilizing an online reverse- energy auction platform. Our reverse energy auction platform drives down energy supplier prices to razor thin margins. Lower margins for the suppliers result in significant cost savings for our Clients. This articles discusses this new buying process that utilizes technology and leverages the power of the internet.
A reverse Energy Auction Platform combines industry expertise through an inclusive network of third party energy suppliers under the umbrella of an online analytics platform. Energy suppliers competitively bid on a Buyer’s requirements in an open hyper-competitive marketplace. Competition among a vast network of suppliers in a reverse- energy auction setting will always generate the best energy pricing opportunities for buyers of electricity or natural gas contracts.
Competition is the key component of a successful energy procurement strategy. With an ever-increasing number of new supplier participants, online auctions ensure that the buyer receives bids from ALL available suppliers. Receiving bid from a large pool of energy suppliers provides a more holistic exposure to available market rates.
In comparison, paper-based requests for proposals (RFP’s) traditionally used by buyers or energy brokers limit the amount of suppliers who are invited to compete. The traditional RFP process results in a small supplier pool as the amount of effort to solicit additional bids is time consuming. This obstacle limits the staff of traditional energy brokers to offering an “adequate” price point as opposed to the “best” price available in the market. Conversely, there is little to no effort in allowing additional suppliers to bid in the online auction process.
Energy is an extremely volatile market which leads to highly fluctuating prices. The time spent between receiving a price and contracting that price may result in an unnecessary 2-5% rate change! To avoid this, online auctions ensure that contracts are executed shortly after the bidding is complete. The increased guarantee of execution reduces suppliers’ risk premiums, allowing them to bid at reduced rates for your business. Furthermore, our platform time stamps and records all bid activity – giving the buyer a much more transparent audit trail.
Our auctions are designed to compress suppliers’ margins to their lowest price points. Our approach to auctions considers the bidders perspective as well as the buyers. Participants can view the competing lowest bids in real time – enabling them to adjust their bidding strategy as necessary.
Our innovative platform implements an automatic reset feature. To counter supplier strategies, the automatic reset feature allows competitive bids placed within the final minute to cause the auction length to expand for another minute. Automatic reset prevents suppliers from swooping in at the final moment to offer a low rate before the auction closes. More importantly, the Automatic Reset feature gives competitors adequate time to counteroffer. The Automatic Reset design proves effective in reducing the leading supplier’s bids at the very final seconds of the auction. Energy Suppliers want to win your business – this drives additional savings to YOU!
Price discovery is vital to establishing the correct product and term length for your business. Our platform has a direct link into many ISO’s and enables buyers to test different products, terms & pricing structures. Price Discovery provides insight into real-time pricing options. LC Associates’ analysts can customize our Price Discovery module to the parameters that the buyer prioritizes. Buyers use our Price Discovery module to meet their specific energy procurement goals. Lastly, our sequential auctions are designed to allow suppliers a second chance to rethink their strategy and adjust their bids to win…driving more savings to YOU!
Traditional brokers and consultants lean too heavily on market expertise and personal relationships. Although important, online auctions already account for these advantages and serve as a tool to suppress supplier margins while providing transparency and insights for buyers, with no risk. Energy auctions allow buyers to use every advantage possible in procuring energy at the lowest prices possible in the ever evolving energy markets.
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