Discover strategies that put you on the path to building smarter Energy & Utilities procurement practices and managing costs more effectively. 

Energy and utilities (E&U) procurement is a critical responsibility for many procurement teams, but it’s often misunderstood and mismanaged. Professionals tend to approach energy procurement based on outdated assumptions and incomplete information, which can increase risk and result in missed opportunities.  

Here are four things that most procurement teams don’t know about energy and utilities procurement—but they absolutely should. When you understand these insights, you’ll be on your way to building smarter procurement strategies and managing costs more effectively. 

1. There’s No “One-Size-Fits-All” E&U Procurement Approach

Electricity and natural gas are commodities that experience price fluctuations in open markets. There is no single or one-size-fits-all strategy that guarantees the lowest cost or price certainty.  

While many procurement teams chase the illusion of “timing the market,” it’s not a realistic strategy. Energy markets are highly volatile and influenced by many unpredictable factors that make it nearly impossible to consistently buy at the lowest price. 

Instead, organizations must spend time exploring procurement strategies to find one that aligns with their priorities and tolerance for risk. Within the risk-reward spectrum, there are two extremes to consider: 

• • Fixed-rate contracts that offer budget certainty – They allow you to lock in prices to guard against market volatility; if the market drops, however, you miss out on potentially lower prices. 
  • Flexible or variable-rate contracts that allow price fluctuations – While this option allows buyers to take advantage of market dips, it also exposes them to risk if the market goes up and prices increase. 

Hybrid approaches, such as layered purchases over time, are also options to help balance risk and reward. This strategy requires more active management since it involves monitoring market conditions and making purchasing decisions at different times. 

What’s the right approach for your company? It depends on what you value most: budget predictability, lower costs, or a balance between the two. 

2. Energy Procurement Requires Looking Beyond Individual Sites

While each of your company’s sites or locations may have its own energy needs and consumption patterns, energy and utilities procurement should always be approached holistically and across the organization. When separate approaches are considered for each site or location, left up to individual energy managers to handle, you end up with a patchwork of contracts and programs that may not align with your company’s overall objectives. 

If something’s working well (or not) at a single location, it can be tempting to manage that location in isolation. But involving key stakeholders in finance and operations and following a comprehensive, corporate-level procurement strategy will produce results. 

3. Fixed-Price Contracts Are Becoming Hard to Lock In

Historically, fixed-price contracts offered the promise of price protection: locking in energy costs for a set period. Today’s reality, however, is different. Now, most contracts include clauses for extraordinary events or market volatility (in other words, when conditions deviate significantly from the norm, you pay for it).  

Energy suppliers are increasingly adding contract provisions that allow them to pass through unexpected costs caused by extraordinary events. (This accelerated after the 2021 Texas power crisis that led to skyrocketing bills that were way above normal.) 

As a result, it’s critical to recognize that 100% fixed-price protection is increasingly rare. If market conditions are stable, then the result is a fully fixed price. But even “fixed” contracts frequently carry exposure to unforeseen market events. In the future, it’s possible that 100% fixed-price products will disappear, so procurement teams need to be prepared.  

 4. Geopolitics Impact Domestic Energy Prices

Global political developments are making an impact on U.S. energy prices that’s far greater than ever before, as events abroad impact costs here at home.  

For instance, Russia’s invasion of Ukraine, along with Europe’s shift away from Russian gas, has affected U.S. supply and pricing. And, as advancements like natural gas liquefaction make it easier and more cost-effective to export U.S. energy resources, domestic prices will be increasingly influenced by global demand.  

Today, it’s vital that procurement teams are aware of international conflicts, trade policies, and supply chain disruptions, which can all drive volatility in domestic energy costs. 

Your Roadmap for Smart E&U Procurement 

Navigating the energy and utilities spend category is becoming more complex every day.  

Fine Tune’s team understands market dynamics, contract risks, global influences, and the evolving landscape of renewables, so we’re ready to help your procurement team make smarter, more resilient decisions to manage risks and control costs. 

We can help you chart a 24-month roadmap for your energy and utilities procurement so that you optimize your indirect spend. 

Get in touch.