Energy flexibility & procurement: how to buy power when you can shift load

Successful procurement managers, energy or facilities leads, and operational planners should draft procurement plans that identify high-impact, flexible loads and seek opportunities to realistically shift demand away from peak energy consumption periods to cheaper times when energy is in lower demand.

Aligning contracts with flexibility can reduce costs. It moves procurement from passive buying to active optimisation by turning operational flexibility into a commercial advantage.

We'll explain procurement flexibility, outline how to align contracts with it to reduce costs, and provide a roadmap for embedding it into procurement cycles.

Why flexibility changes the procurement game

Power prices now vary hour-to-hour dramatically

Due to several factors, such as the integration of renewables into the mix, geopolitical pressures, and changes to energy legislation. Flexibility allows procurement managers to exploit these price drops and rises hour by hour, rather than fall victim to them. 

Flexibility lets buyers choose cheaper hours without sacrificing output

Flexibility gives power procurers the option to buy smaller increments of power, known as tranches, during lower-priced periods rather than buying bulk lots of overpriced energy at once, so they can take advantage of lower pricing without reducing how much energy they consume.

Flexibility reduces supplier risk premiums by smoothing demand

Ideally, businesses would consume energy at different times so that the grid is not under demand pressure from businesses all at once. Altering the consumption of other companies to different time shifts all operations from peak times to off-peak, which smoothes demand and reduces pressure on the grid. Changing times of key operations, for example, less time-sensitive ones, to lower-demand periods, also allows buyers to take advantage of lower-priced energy for high-energy operations.

It also supports sustainability goals during periods of high renewable energy

Prioritising energy consumption during periods of high renewable generation enables procurers to support the renewables industry while benefiting from a choice of energy options that advance sustainability goals. Environmental, Societal and Governance goals as well as carbon reduction targets can be achieved by switching to high-renewables periods, for example, prioritising consumption during periods of high wind for wind power or sunny stretches for solar output.

Which loads are most valuable to shift

Successful procurement strategies allow businesses to shift frequent or energy-intensive operations from more expensive power rates to cheaper off-peak rates.

Industrial processes

High-energy processes often can’t be switched on or off to reduce energy consumption, but they can be switched to off-peak periods to avoid peak pricing. Industrial processes that can be changed to run off-peak might include pumps, compressors, refrigeration or heat storage.

Commercial loads

In a similar vein, large-scale commercial loads such as HVAC, hot water, or data centre cooling can be shifted to off-peak times, though some elements, such as refrigerated food, require an always-on approach and therefore can't be moved.

EV charging

Electrical vehicle charging can act as a flexibility lever, with electric vehicle owners buying energy at a lower off-peak rate, storing it in their electric vehicle's battery, and selling it back to the grid at a higher peak rate.

Ranking loads

Key considerations for shifting loads fall into three areas: shiftability, which concerns which operations can be moved; duration, which concerns how long operations can be shifted for; and the overall business impact of shipping the load. The flex value is the estimated value per MWh shifted, including factors such as ancillary services, infrastructure upgrades, and avoided costs related to the gap between high- and low-priced periods.

Aligning supply contracts with flexible operations

Before embarking on a procurement strategy, it's worth bearing in mind the different flexible opinions available for structuring contracts. Fixed models are the way to secure lower-cost energy over a more extended period, but don't offer the flexibility of flexible procurement models for flexible sites. These involve tranche buying informed by expected shiftable load and allow procurers to take advantage of lower-priced energy during lower periods, but obviously come with the risk of having to absorb the cost of higher-priced energy during certain times.

You could even incorporate clauses that exploit time-of-use or indexed tariffs that reward shifting, but, conversely, ensure that any contracts don't penalise shifting with factors such as tolerance bands.

Capturing flexibility value in wholesale and local markets

Procurement teams can avoid peak tariffs or demand charges by altering energy consumption in line with market pricing signals and utilising automated services to switch consumption automatically when pricing follows patterns of change. Specific opportunities also allow procurers to participate in demand response or flexibility programmes, either directly through organisations such as the National Energy System Operator (NESO) in the UK for example, or through an aggregator. These routes often utilise innovative technologies such as EV charging and automated processing.

How to build a flexibility-first procurement roadmap

1. Map load expectations and flexibility potential.

2. Quantify the commercial value of energy under current tariffs.

3. Design a procurement model to capture the key goals, challenges and benefits of different purchasing decisions.

4. Automate the control and measurement of predictive data via a dedicated Energy Management System.

5. Review and update KPIs, analysis and predictive documents as operations change.

Remember: If you can shift load, you shouldn't buy power like a fixed consumer; flexibility is an asset and procurement should treat it that way.