Energy procurement across sites & countries: how to build a buying portfolio

However, energy portfolio procurement requires careful thought, with consideration given to carbon reduction targets as well as simple profit. This represents a growing need as corporates centralise energy buying and ESG reporting. Attention should also be paid to the impact of aggregation benefits and how to structure them.

We’ll take a look at some successful governance models for portfolio control and the best practices for implementing them.

Why multi-site procurement is fundamentally different

While some of the strategies procurement experts apply to single-site procurement also apply to multi-site procurement, the latter requires a different approach. 

Load diversity, location risk, contract timing spread

Load patterns, also known as demand, tend to vary across different areas, which can be exploited to take advantage of lower pricing at sites during periods of lower demand. This requires planning and attention to historical and real-time data to identify consumption patterns. Procurers can spread risk across locations, benefiting from lower energy prices in certain regions. This does come with its own difficulties, though, as different areas face distinct legislative and geopolitical challenges. Risk can also be spread across different contacts, though this can be complex to avoid being stuck with suppliers during expensive energy periods. 

Portfolio effects on supplier pricing

Multiple sites come with multiple administration charges, marketing costs, bills, and supplier costs, so it’s important to factor this in when designing a diverse portfolio of sources. However, multiple-site portfolios can offer cost benefits: having multiple portfolios can drive price competition between sites and reduce exposure to pricing increases and decreases, because energy is procured from various sources with different pricing impacts.

Aggregation benefits and pitfalls

Aggregating sites involves combining all the energy from each site to achieve better pricing and negotiation. 

Risk pooling and scale discounts

Procurement managers can reduce the risks associated with energy buying by spreading risk across a portfolio of different energy sources; this is known as risk pooling. The portfolio might be diversified by region to leverage different weather zones for renewable generation, or by mixing up sites with alternative peak usage times so that lower pricing during off-peak times can be taken advantage of. 

When aggregation creates shape-mismatch penalties

When large-volume buyers procure energy, suppliers can often demand that they be contracted to buy a certain amount. However, this can cause shape mismatch, where the actual energy used by the procurer doesn’t match the pre-agreed amount. This can be due to several factors, including the volatility of renewable energy generation or volume commitment penalties imposed by the supplier.

Harmonising contract structures across Europe

Due to varying market structures, regulations and connectivity, harmonising contracts across different regions can be challenging. 

Standardising risk models 

Risk models can be tailored to specific procurement goals, with fixed, flexible, and hybrid contracts available. Fixed contracts fix energy prices for a particular period, often over a longer term, such as 10 years. This allows for low risk, as a business knows in advance how much energy will cost them over this term. Flexible terms allow tranches of energy to be purchased in smaller increments, enabling low prices to be exploited at lower risk. Hybrid contracts offer the best of both worlds, with baseline consumption fixed and a portion of energy procured on a flexible basis. 

Creating comparable KPIs across hubs

To manage the complexity of multi-site management, it's crucial to implement meaningful KPIs to measure across all sites. This helps procurement managers assess how a site is performing from a pricing perspective, as well as its long-term value. Tools used to gather and process information that might inform KPIs include smart meters and tailored dashboards that deliver relevant, actionable insights.

Managing on a regional basis and regulatory differences

The DACH region, the UK and the Nordics, for example, have very different approaches to the energy market, and these nuances should be considered when procuring energy from these regions. Each has a distinct regulatory framework, so procurement managers must understand the nuances of each regulation and how they might affect broader portfolio construction. From an energy mix perspective, the DACH market is transitioning from a high share of fossil fuel generation to wind and solar, while the UK is transitioning to a mix of renewable and fossil fuels. The Nordic market has the highest level of renewable generation of the three.

Governance models for portfolio procurement

Governance models for portfolio management tend to be more complex than those for single sites, due to differing regional regulations, consumption patterns, and geopolitical tensions. This can be partially alleviated by either centralising or decentralising management. The former appoints a single team to manage all sites in the portfolio, which can leverage bulk buying to secure cheaper rates. In contrast, the latter allows each site to manage its own contracts and procurement, which can be slower to react to market changes and unable to get the best rates. Overall, portfolio procurement is about consistency with flexibility; not one-size-fits-all.