Companies spend millions of dollars on energy every year. Studies show that energy costs are a business's top three operating expenses. As with all significant expenses, developing a budget is considered a best practice. However, energy is more than a cost to be managed; it's an opportunity to use energy strategy to drive value. An energy roadmap that integrates energy into your company strategy is a starting point. Only then can you create an adequate budget that balances resilience, risk, growth and value and uses energy as a competitive advantage.
Before creating an energy budget, a company must develop an energy strategy that looks at the big picture and mega-trends. Variables impacting your business’s energy strategy include current regulatory conditions, supply-side dynamics, market conditions and future trends that could impact energy delivery and pricing. From there, you can translate those factors into an energy budget. Once developed, an energy budget will also inform decisions to keep your company supplied with affordable and reliable energy. It can also be used to align strategies for success on environmental, social and governance (ESG) initiatives allowing you to maximize company priorities.
From national companies to small businesses, owners rely on energy supplies at globally competitive prices. As the energy market evolves, a business must adopt a holistic approach to energy using cost structure as a point of differentiation. Energy policy/cost, efficiency and energy management are three pillars that will help business owners reduce their energy footprint and get more energy for their buck.
When considering an energy budget, the first step is determining your baseline. This can be a daunting task for companies with geographic breadth. A process and system that gathers real-time information will allow data to be assimilated, assessing energy locally and at an enterprise level. In addition, data enables a comprehensive review and analysis of trends that help to understand operations, predict costs and examine energy impact.
Federal Energy Regulatory Commission (FERC) regulates the energy procurement process in the United States. FERC is responsible for ensuring that energy markets are operating fairly and efficiently. That said, energy regulations, as does the energy cost, vary from region to region. Therefore, where you locate your business has significant implications on your energy budget. For instance, Kentucky's low price of electricity, coming in at $12.21 per Kilowatt hour (kWh) for commercial as of December 2022, is 17% lower than the national average. This directly influences bottom-line costs and the capital committed to utility consumption. For example, in December of 2022, two prominent players in the electric vehicle (EV) market selected Kentucky as their home for new facilities because of the low energy cost. On the other hand, California has one of the highest energy costs at $19.74 per kWh for commercial as of December 2022, causing businesses to flee the state because of the energy pricing and the regulatory climate.
Energy efficiency is using less energy to perform the same task or produce the same result. In the process, it cuts energy bills and reduces pollution. Simply put, it is the easiest, most cost-effective way to combat climate change. The government is seeding efficiency programs. From the federal government’s IRA bill to state efficiency programs—partially funded by electric and gas utilities—there is an opportunity for business to take advantage of incentives. As a business, the most effective type of energy conservation measure aligns with a business's budget and gets done. Benchmark your facility’s energy consumption and identify energy savings opportunities.
Finally, beware of building codes that mandate electrification as a means to efficiency that will require high up-front retrofit costs and increased ongoing electricity costs. Energy management is a consideration for your energy budget. Finding the best energy contract for your business needs will offer better value for your energy spending and higher profitability.
