How To Best Manage Your Business Energy Costs
Too many companies treat energy usage as a fixed cost, despite the fact that it’s the largest operating expense in commercial office buildings, according to Energy Star. Yet anyone who’s paid a utility bill knows that the costs can vary dramatically, and ignoring what causes that volatility creates a risk that you’ll inadvertently exceed your energy budget plan.
As opposed to companies that charge a set monthly rate for unlimited usage, such as with cell phones or cable television, utility companies frequently charge a variable rate based not only on your rate of consumption but also on their own costs for supplying energy.
So even if you take all the right steps to reduce energy consumption such as installing more efficient lighting, you can still end up spending more than you planned on business energy costs based on how your utility company prices its services.
First, each utility has different rate and tariff structures that their customers are subject to. When setting your energy budget for the year, if your company operates in multiple states you may not factor in that certain offices will have higher energy costs simply because of state taxes. Moreover, if you open a new office during the year, you may wrongly assume that energy costs will be the same as in another location.
Next, prices can spike due to traditional supply and demand economics. For example, demand tends to rise during periods of extreme temperatures, as ratepayers need more power for heating or cooling. Thus, energy prices tend to rise during these periods, so if you’re not aware of these costs, you may go over budget while using the same amount of energy as usual.
Your energy bill can also rise due to more nuanced demand charges. Depending on the location, your utility company may adjust prices based on the time of day to account for periods of high demand. So, if your energy usage tends to occur when everyone else’s does, you could end up outspending your business’ electricity budget rather than if you shifted consumption to off-peak hours.
Demand and Capacity Charges
Utility companies also charge higher rates based on how much capacity you require from the grid, and these costs come in two forms. The first is a demand charge, where the utility company charges you a certain rate based on your peak amount of energy usage during the day. This occurs because even if most consumers use a steady stream of power throughout the day, if certain consumers require a surge of energy at noon, for example, the utility company needs to purchase more capacity from power generation assets to be able to serve customers during that peak. So the utility company tries to account for these surges by placing demand charges on consumers.
As a result, up to 50% of most organizations’ energy expenses are dictated by daily 15–30-minute peak usage periods.
Similar to the case with demand charges, if everyone uses significantly more power on a particular day, the grid needs to be prepared to handle that surge by purchasing additional power generation capacity, which may come from less efficient sources.
Thus, facilities are assigned a capacity tag, which is based on as little as a single 15-minute interval of energy usage during the day the grid’s demand peaked over the last 12 months. Even if your company uses less energy going forward, your costs could still be higher since the grid operators and utility companies have already purchased the additional capacity to handle potential surges. Capacity tag related charges can comprise up to 20% of a company’s energy bill, so it’s very difficult to set an accurate budget as such spurts can have such a large impact on overall energy costs.
Energy Analytics Software
By using Energy Analytics Software (EAS), you can get a better breakdown of your utility bill so that you can understand the specific rates and tariffs, as well as project potential periods of grid peaks, so you can take build a proper business energy budget and minimize capacity tag associated charges for the following year.
Having this type of insight allows you to proactively manage your energy budget, rather than hoping for the best when receiving your monthly bill.
Request a complimentary energy efficiency assessment to find out how Artis Energy’s RTIS® energy analytics platform can provide you with the visibility and insight to transform energy from a fixed cost into a distinct competitive advantage.